[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Notices]
[Pages 30574-30592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13680]



[[Page 30573]]

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Part II





Department of Commerce





_______________________________________________________________________



International Trade Administration



_______________________________________________________________________



Final Determination of Sales at Less Than Fair Value: Stainless Steel 
Sheet and Strip in Coils From Japan, Taiwan, Germany, etc.; Notice

  Federal Register / Vol. 64, No. 109 / Tuesday, June 8, 1999 / 
Notices  

[[Page 30574]]



DEPARTMENT OF COMMERCE

International Trade Administration
[A-588-845]


Notice of Final Determination of Sales at Less Than Fair Value: 
Stainless Steel Sheet and Strip in Coils From Japan

AGENCY: Import Administration, International Trade Administration, 
Department of Commerce.

EFFECTIVE DATE: June 8, 1999.

FOR FURTHER INFORMATION CONTACT: Letitia Kress or Karla Whalen, Import 
Administration, International Trade Administration, U.S. Department of 
Commerce, Room 7866, 14th Street and Constitution Avenue, N.W., 
Washington, D.C. 20230; at telephone: (202) 482-3793.

The Applicable Statute

    Unless otherwise indicated, all citations to the Tariff Act of 
1930, as amended (``the Act''), are references to the provisions 
effective January 1, 1995, the effective date of the amendments made to 
the Act by the Uruguay Round Agreements Act (``URAA''). In addition, 
unless otherwise indicated, all citations to the Department of Commerce 
(``Department'') regulations are to the regulations at 19 CFR Part 351 
(1998).

Final Determination

    We determine that stainless steel sheet and strip in coils 
(``SSSS'') from Japan are being sold in the United States at less than 
fair value (``LTFV''), as provided in section 735 of the Act. The 
estimated margins are shown in the ``Continuation of Suspension of 
Liquidation'' section of this notice.

Case History

    Since the preliminary determination, issued on December 17, 1998 
(Notice of Preliminary Determination of Sales at Less Than Fair Value 
and Postponement of Final Determination: Stainless Steel Sheet and 
Strip in Coils from Japan, 64 FR 108 (January 4, 1999)) (``Preliminary 
Determination''), the following events have occurred.
    On December 21, 1998, Nippon Steel Corporation (``NSC'') requested 
that the Department extend the deadline for its response to the Section 
D supplemental questionnaire until January 11, 1998. The Department 
granted NSC an extension for this response until January 4, 1999. On 
December 22, 1998, petitioners submitted comments on NSC's Section D 
response. On January 4, 1999, NSC notified the Department of its 
inability to respond to the Section D supplemental request on time. On 
January 11, 1999, Petitioners requested that the Department cancel 
verification for NSC due to the lack of a response and base its final 
determination on facts otherwise available. On January 12, 1999, the 
Department granted NSC an extension to respond to the supplemental cost 
response until January 25, 1999. On January 19, 1999, NSC notified the 
Department that it could not respond to the Department's supplemental 
questionnaire. However, in the same letter, NSC also asked the 
Department to verify its shipment data for purposes of the Department's 
final critical circumstances determination.
    On December 22, 1998, the Department issued a supplemental cost 
questionnaire to Kawasaki Steel Corporation (``KSC''). On December 23, 
1998, KSC requested an extension of the deadline for its response to 
supplemental cost questionnaire. On January 4, 1999, KSC submitted a 
ministerial error allegation on the Department's Preliminary 
Determination. On February 23, 1999, the Department published the 
amended preliminary determination incorporating the correct scope 
language. See Notice of Preliminary Determinations of Sales at Less 
than Fair Value: Stainless Steel Sheet and Strip from France, Germany, 
Italy, Japan, Mexico, South Korea, and United Kingdom; and Amended 
Preliminary Determination of Sales at Less than Fair Value, Stainless 
Steel Sheet and Strip from Taiwan, 64 FR 8749 (Feb. 23, 1999). On 
January 25, 1999, KSC submitted its supplemental cost response to the 
Department as well as its supplemental home market sales information.
    On January 15, 1999, Sumitomo Metal Industries (``SMI''), a 
producer not selected as a respondent in this investigation, requested 
that the Department reverse its decision that SMI be subject to the 
``All Others'' affirmative critical circumstances cooperative finding 
since it cooperated with the Department's request for information until 
being deselected as a respondent (See Decision Memorandum from Division 
Directors, Office VII, to Joseph Spetrini, regarding Selection of 
Respondents, September 21, 1998). On January 29, 1999, Nippon Metal 
Industry Co., Ltd. (``NMI''), a mandatory but unresponsive respondent, 
submitted shipment information in connection with the Department's 
preliminary critical circumstances finding.
    On January 25, 1999 and February 2, 1999, KSC and NSC, 
respectively, requested that the Department conduct a hearing. On 
February 2, 1999, petitioners and SMI requested that they too 
participate in the hearing.
    On January 28, 1999, petitioners submitted comments regarding the 
upcoming KSC sales verification. On March 24, 1999, the Department 
forwarded the sales verification outline to KSC. The Department 
conducted the sales verification from February 1 through February 9, 
1999. On February 2, 1999 and February 9, 1999, KSC submitted a list of 
minor corrections reported at the beginning of verification for KSC and 
Kawasho Corporation (``Kawasho''), its affiliated trading company, 
respectively. The Department did not conduct a sales verification of 
NSC or NMI.
    On February 12, 1999, the Department issued the cost verification 
outline to KSC. Petitioners submitted cost verification comments 
regarding KSC on February 18, 1999. The Department conducted the cost 
verification in conjunction with the LTFV investigation on Certain Hot-
Rolled Flat-Rolled Carbon-Quality Steel Products from Japan from 
February 22 through March 5, 1999. The Department issued its cost 
verification report on March 23, 1999 and sales verification report on 
March 24, 1999. (See Memorandum to James Doyle, Program Manager, AD/CVD 
Enforcement Group III, Office 7: Verification of the Sales 
Questionnaire Responses of Kawasaki Steel Corporation (``KSC Sales 
Verification Report'') and Memorandum to Neal Halper, Acting Director, 
Office of Accounting: Cost Verification Report-Kawasaki Steel 
Corporation) (``KSC Cost Verification Report''). On April 13, 1999, KSC 
submitted a revised sales database which incorporated the minor 
corrections presented at verification as well as verification findings.
    On April 2, 1999, Petitioners, KSC, SMI, Watanabe Trading Co., Ltd. 
(``Watanabe''), and Printing Developments Inc. submitted case briefs. 
On April 9, 1999, petitioners, KSC and NSC submitted rebuttal briefs. 
The Department conducted the hearing on April 14, 1999.

Scope of the Investigation

    We have made minor corrections to the scope language excluding 
certain stainless steel foil for automotive catalytic converters and 
certain specialty stainless steel products in response to comments by 
interested parties.
    For purposes of this investigation, the products covered are 
certain stainless steel sheet and strip in coils. Stainless steel is an 
alloy steel containing, by weight, 1.2 percent or less of carbon and 
10.5 percent or more of chromium, with

[[Page 30575]]

or without other elements. The subject sheet and strip is a flat-rolled 
product in coils that is greater than 9.5 mm in width and less than 
4.75 mm in thickness, and that is annealed or otherwise heat treated 
and pickled or otherwise descaled. The subject sheet and strip may also 
be further processed (e.g., cold-rolled, polished, aluminized, coated, 
etc.) provided that it maintains the specific dimensions of sheet and 
strip following such processing.
    The merchandise subject to this investigation is classified in the 
Harmonized Tariff Schedule of the United States (HTS) at subheadings: 
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80, 
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05, 
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36, 
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05, 
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36, 
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05, 
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35, 
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35, 
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60, 
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10, 
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 
7220.20.60.10, 7220.20.60.15, 7220.20.60.60, 7220.20.60.80, 
7220.20.70.05, 7220.20.70.10, 7220.20.70.15, 7220.20.70.60, 
7220.20.70.80, 7220.20.80.00, 7220.20.90.30, 7220.20.90.60, 
7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and 7220.90.00.80. 
Although the HTS subheadings are provided for convenience and Customs 
purposes, the Department's written description of the merchandise under 
investigation is dispositive.
    Excluded from the scope of this investigation are the following: 
(1) Sheet and strip that is not annealed or otherwise heat treated and 
pickled or otherwise descaled, (2) sheet and strip that is cut to 
length, (3) plate (i.e., flat-rolled stainless steel products of a 
thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled 
sections, with a prepared edge, rectangular in shape, of a width of not 
more than 9.5 mm), and (5) razor blade steel. Razor blade steel is a 
flat-rolled product of stainless steel, not further worked than cold-
rolled (cold-reduced), in coils, of a width of not more than 23 mm and 
a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5 
percent chromium, and certified at the time of entry to be used in the 
manufacture of razor blades. See Chapter 72 of the HTS, ``Additional 
U.S. Note'' 1(d).
    In response to comments by interested parties the Department has 
determined that certain specialty stainless steel products are also 
excluded from the scope of this investigation. These excluded products 
are described below.
    Flapper valve steel is defined as stainless steel strip in coils 
containing, by weight, between 0.37 and 0.43 percent carbon, between 
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent 
manganese. This steel also contains, by weight, phosphorus of 0.025 
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur 
of 0.020 percent or less. The product is manufactured by means of 
vacuum arc remelting, with inclusion controls for sulphide of no more 
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper 
valve steel has a tensile strength of between 210 and 300 ksi, yield 
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a 
hardness (Hv) of between 460 and 590. Flapper valve steel is most 
commonly used to produce specialty flapper valves in compressors.
    Also excluded is a product referred to as suspension foil, a 
specialty steel product used in the manufacture of suspension 
assemblies for computer disk drives. Suspension foil is described as 
302/304 grade or 202 grade stainless steel of a thickness between 14 
and 127 microns, with a thickness tolerance of plus-or-minus 2.01 
microns, and surface glossiness of 200 to 700 percent Gs. Suspension 
foil must be supplied in coil widths of not more than 407 mm, and with 
a mass of 225 kg or less. Roll marks may only be visible on one side, 
with no scratches of measurable depth. The material must exhibit 
residual stresses of 2 mm maximum deflection, and flatness of 1.6 mm 
over 685 mm length.
    Certain stainless steel foil for automotive catalytic converters is 
also excluded from the scope of this investigation. This stainless 
steel strip in coils is a specialty foil with a thickness of between 20 
and 110 microns used to produce a metallic substrate with a honeycomb 
structure for use in automotive catalytic converters. The steel 
contains, by weight, carbon of no more than 0.030 percent, silicon of 
no more than 1.0 percent, manganese of no more than 1.0 percent, 
chromium of between 19 and 22 percent, aluminum of no less than 5.0 
percent, phosphorus of no more than 0.045 percent, sulfur of no more 
than 0.03 percent, lanthanum of less than 0.002 or greater than 0.05 
percent, and total rare earth elements of more than 0.06 percent, with 
the balance iron.
    Permanent magnet iron-chromium-cobalt alloy stainless strip is also 
excluded from the scope of this investigation. This ductile stainless 
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10 
percent cobalt, with the remainder of iron, in widths 228.6 mm or less, 
and a thickness between 0.127 and 1.270 mm. It exhibits magnetic 
remanence between 9,000 and 12,000 gauss, and a coercivity of between 
50 and 300 oersteds. This product is most commonly used in electronic 
sensors and is currently available under proprietary trade names such 
as ``Arnokrome III.'' 1
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    \1\ ``Arnokrome III'' is a trademark of the Arnold Engineering 
Company.
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    Certain electrical resistance alloy steel is also excluded from the 
scope of this investigation. This product is defined as a non-magnetic 
stainless steel manufactured to American Society of Testing and 
Materials (ASTM) specification B344 and containing, by weight, 36 
percent nickel, 18 percent chromium, and 46 percent iron, and is most 
notable for its resistance to high temperature corrosion. It has a 
melting point of 1390 degrees Celsius and displays a creep rupture 
limit of 4 kilograms per square millimeter at 1000 degrees Celsius. 
This steel is most commonly used in the production of heating ribbons 
for circuit breakers and industrial furnaces, and in rheostats for 
railway locomotives. The product is currently available under 
proprietary trade names such as ``Gilphy 36.'' 2
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    \2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
---------------------------------------------------------------------------

    Certain martensitic precipitation-hardenable stainless steel is 
also excluded from the scope of this investigation. This high-strength, 
ductile stainless steel product is designated under the Unified 
Numbering System (UNS) as S45500-grade steel, and contains, by weight, 
11 to 13 percent chromium, and 7 to 10 percent nickel. Carbon, 
manganese, silicon and molybdenum each comprise, by weight, 0.05 
percent or less, with phosphorus and sulfur each comprising, by weight, 
0.03 percent or less. This steel has copper, niobium, and titanium 
added to achieve aging, and will exhibit yield strengths as high as 
1700 Mpa and ultimate tensile strengths as high as 1750 Mpa after 
aging, with elongation percentages of 3 percent or less in 50 mm. It is 
generally provided in thicknesses between 0.635 and 0.787 mm, and in 
widths of 25.4 mm. This product is most commonly used in the 
manufacture of television tubes and is

[[Page 30576]]

currently available under proprietary trade names such as ``Durphynox 
17.'' 3
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    \3\ ``Durphynox 17'' is a trademark of Imphy, S.A.
---------------------------------------------------------------------------

    Finally, three specialty stainless steels typically used in certain 
industrial blades and surgical and medical instruments are also 
excluded from the scope of this investigation. These include stainless 
steel strip in coils used in the production of textile cutting tools 
(e.g., carpet knives).4 This steel is similar to AISI grade 
420 but containing, by weight, 0.5 to 0.7 percent of molybdenum. The 
steel also contains, by weight, carbon of between 1.0 and 1.1 percent, 
sulfur of 0.020 percent or less, and includes between 0.20 and 0.30 
percent copper and between 0.20 and 0.50 percent cobalt. This steel is 
sold under proprietary names such as ``GIN4 Mo.'' The second excluded 
stainless steel strip in coils is similar to AISI 420-J2 and contains, 
by weight, carbon of between 0.62 and 0.70 percent, silicon of between 
0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent, 
phosphorus of no more than 0.025 percent and sulfur of no more than 
0.020 percent. This steel has a carbide density on average of 100 
carbide particles per 100 square microns. An example of this product is 
``GIN5'' steel. The third specialty steel has a chemical composition 
similar to AISI 420 F, with carbon of between 0.37 and 0.43 percent, 
molybdenum of between 1.15 and 1.35 percent, but lower manganese of 
between 0.20 and 0.80 percent, phosphorus of no more than 0.025 
percent, silicon of between 0.20 and 0.50 percent, and sulfur of no 
more than 0.020 percent. This product is supplied with a hardness of 
more than Hv 500 guaranteed after customer processing, and is supplied 
as, for example, ``GIN6''. 5
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    \4\ This list of uses is illustrative and provided for 
descriptive purposes only.
    \5\ ``GIN4 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary 
grades of Hitachi Metals America, Ltd.
---------------------------------------------------------------------------

Period of Investigation

    The period of investigation (``POI'') is April 1, 1997 through 
March 31, 1998.

Product Comparisons

    In accordance with section 771(16) of the Act, we considered all 
products, covered by the description in the Scope of Investigation 
section above produced by KSC, and sold in Japan during the POI to be 
foreign like products for purposes of determining appropriate product 
comparisons to U.S. sales. We relied on nine characteristics to match 
U.S. sales of subject merchandise to comparison market sales of the 
foreign like product (listed in order of significance): grade; hot/cold 
rolled; gauge; finish; metallic coating; non-metallic coating; width; 
temper/tensile strength; and edge trim. These characteristics have been 
weighted by the Department where appropriate. Where there were no sales 
of identical merchandise in the home market to compare to U.S. sales, 
we compared U.S. sales to the next most similar foreign like product on 
the basis of the characteristics listed in the antidumping duty 
questionnaire instructions.

Fair Value Comparisons

    To determine whether sales of SSSS from Japan to the United States 
were made at LTFV, we compared export price (``EP'') to the normal 
value (``NV''), as described in the ``Export Price'' and ``Normal 
Value'' sections of this notice below. In accordance with sections 
772(a) and (c) of the Act, we calculated EP for all of KSC's sales, 
since the subject merchandise was first sold in the United States to an 
unaffiliated purchaser, and constructed export price (``CEP'') was not 
otherwise warranted based on the facts on the record.

Level of Trade

    In accordance with section 773(a)(1)(B) of the Act, to the extent 
practicable, the Department determines NV based on sales in the 
comparison market at the same level of trade (``LOT'') as the EP or CEP 
transaction. The NV LOT is that of the starting-price sales in the 
comparison market or, when NV is based on constructed value (``CV''), 
that of the sales from which we derive selling, general and 
administrative (``SG&A'') expenses and profit. For EP, the U.S. LOT is 
also the level of the starting-price sale, which is usually from 
exporter to importer. For CEP sales, it is the level of the constructed 
sale from the exporter to the importer. To determine whether NV sales 
are at a different LOT than EP or CEP, we examine stages in the 
marketing process and selling functions along the chain of distribution 
between the producer and the unaffiliated customer. If the home market 
sales are at a different LOT, and the difference affects price 
comparability, as manifested in a pattern of consistent price 
differences between the sales on which NV is based and home market 
sales at the LOT of the export transaction, we make an LOT adjustment 
under section 773(a)(7)(A) of the Act. Finally, for CEP, if the NV 
level is more remote from the factory than the CEP level and there is 
no basis for determining whether the difference in the levels between 
NV and CEP affects price comparability, we adjust NV under section 
773(a)(7)(B) of the Act (the CEP offset provision). See Notice of Final 
Determination of Sales at Less Than Fair Value: Certain Cut-to-Length 
Carbon Steel Plate from South Africa, 62 FR 61731 (November 19, 1997).
    We applied the aforementioned criteria in the Preliminary 
Determination and indicated that the information on the record revealed 
two levels of trade (end-users and trading companies) for KSC in the 
home market. The Department also found that sales made through trading 
companies in both the home market and the United States were at the 
same level of trade. See Preliminary Determination, 64 FR at 114-115. 
As we further explain this issue in response to Comment 3, below, we 
continue to find that there are two levels of trade: (1) KSC sales to 
end-users; and (2) KSC sales to affiliated and unaffiliated trading 
companies. Additionally, we continue to find that no consistent, 
significant pattern of price differences existed and therefore we did 
not adjust NV for U.S. sales when compared to home market sales made at 
a different LOT.

Export Price

    We calculated EP based on the packed, delivered price to 
unaffiliated purchasers in the United States. For KSC, we deducted, 
where appropriate, foreign inland freight, insurance, rebates, 
brokerage and handling from the starting price and added duty drawback.

Normal Value

    After testing home market viability and whether home market sales 
were at below-cost prices, we calculated NV as noted in the ``Price-to-
Price Comparisons'' and ``Price-to-CV Comparisons'' sections of this 
notice, below.

1. Home Market Viability

    As discussed in the Preliminary Determination, we determined that 
the home market was viable. See Preliminary Determination, 64 FR at 
113. The parties did not contest the viability of the home market and 
we have no other reason to reconsider our preliminary determination 
regarding viability. Consequently, for the final determination, we have 
based NV on home market sales.

2. Cost of Production (``COP'')

    In accordance with section 773(b)(3) of the Act, we calculated the 
weighted-average COP, based on the sum of KSC's cost of materials, 
fabrication, SG&A expenses, and packing costs. We relied on KSC's 
submitted COPs, except in the following specific instances where the

[[Page 30577]]

submitted costs were not appropriately quantified or valued.
    1. We adjusted KSC's reported cost of manufacturing to remove 
variances associated with the packing and transportation cost centers.
    2. We revised KSC's reported financial expense rate to include a 
subsidiary's excluded foreign exchange losses.
    3. We applied the general and administrative expense rate and 
financial expense rate to KSC's cost of manufacturing plus packing 
expenses and loading costs. See Memorandum of Cost of Production and 
Constructed Value Calculation Adjustments for the Final Determination 
from William Jones to Neal Halper, dated May 19, 1999. (``Cost 
Calculation Memo'')
    We conducted the sales-below-cost test in the same manner as 
described in our Preliminary Determination, 64 FR at 113. As with our 
Preliminary Determination, we found that for certain models of SSSS, 
more than 20 percent of KSC's home market sales were at prices less 
than the COP within an extended period of time. See section 
773(b)(1)(A) of the Act. Further, the prices did not provide for the 
recovery of cost within a reasonable period of time. We, therefore, 
disregarded the sales that failed the cost test and used the remaining 
sales as the basis for determining NV, in accordance with section 
773(b)(1) of the Act.

3. Calculation of Constructed Value

    In accordance with section 773(e) of the Act, we calculated CV 
based on the sum of KSC's cost of materials, fabrication, SG&A 
expenses, direct and indirect selling expenses, interest expense, 
research and development expenses incurred in producing the subject 
merchandise, U.S. packing costs, and profit. We relied on the submitted 
CVs except for the specific instances noted in the ``Cost of 
Production'' section above.

Price-to-Price Comparisons

    For those product comparisons for which there were sales that did 
not fail the cost test, we based NV on prices to home market customers. 
We made adjustments, where appropriate, for physical differences in the 
merchandise in accordance with section 773(a)(6)(C) of the Act. Where 
applicable, we made adjustments for rebates and movement expenses. To 
adjust for differences in circumstances of sale between the home market 
and the United States, we reduced home market prices by the amounts of 
direct selling expenses (i.e., warranty and credit expenses) and added 
U.S. credit expenses. In order to adjust for differences in packing 
between the two markets, we deducted home market packing costs and 
added U.S. packing costs.

Price-to-CV Comparisons

    In accordance with section 773(a)(4) of the Act, where we were 
unable to find a home market match of identical or similar merchandise, 
we based NV on CV. We calculated CV based on KSC's cost of materials, 
fabrication, SG&A expenses, U.S. packing, direct and indirect expenses, 
interest expense, research and development expenses employed in 
producing the subject merchandise, and profit. In accordance with 
section 773(a)(2)(A) of the Act, we based SG&A expense and profit on 
the amounts incurred and realized by KSC in connection with the 
production and sale of the foreign like product during the ordinary 
course of trade for consumption in Japan. For selling expenses, we used 
the weighted-average home market selling expenses. Where appropriate, 
we made adjustments to CV in accordance with section 773(a)(8) of the 
Act. For comparisons to EP, we made circumstances of sale (``COS'') 
adjustments by deducting home market direct selling expenses and adding 
U.S. direct selling expenses.

Changes Since the Preliminary Determination

    Based on our analysis of comments received, we have made certain 
corrections for the final determination. We have corrected certain 
programming and clerical errors that occurred in the Preliminary 
Determination. Where applicable, these errors are discussed in the 
relevant comment sections below.

Currency Conversion

    We made currency conversions into U.S. dollars in accordance with 
section 773A of the Act based on the exchange rates in effect on the 
dates of the U.S. sales, as certified by the Federal Reserve Bank.

Facts Available

    Section 776(a)(2) of the Act provides that, if an interested party: 
(A) Withholds information that has been requested by the Department; 
(B) fails to provide such information in a timely manner or in the form 
or manner requested; (C) significantly impedes a proceeding under the 
antidumping statute; or (D) provides such information but the 
information cannot be verified, as provided in section 782(i), the 
Department shall, subject to subsections 782(d) of the Act, use facts 
otherwise available in reaching the applicable determination. In this 
investigation, NSC, NMI, Nisshin Steel Co., Ltd., and Nippon Yakin 
Kogyo failed to provide requested information. Therefore, use of facts 
available is warranted.
    Section 776(b) of the Act further provides that adverse inferences 
may be used for a party that has failed to cooperate by not acting to 
the best of its ability to comply with a request for information (See 
Statement of Administrative Action (``SAA''), accompanying the URAA, 
H.R. DOC. No. 103-316 at 870 (1994)). Given that Nisshin Steel 
Corporation, Nippon Yakin Kogyo and NMI refused to comply with the 
Department's request for information, we find that these companies have 
failed to act to the best of their ability to comply with reporting 
obligations in this investigation. Therefore, the Department has 
determined that an adverse inference is warranted with respect to these 
three mandatory respondents. As in the Preliminary Determination, the 
Department has selected as adverse facts available a margin of 57.87 
percent, which is based on the highest margin alleged in the petition 
for any Japanese producer. As discussed in the Preliminary 
Determination, the Department has, to the extent practicable, 
corroborated the information used as adverse facts available because 
information from a petition is considered secondary information. See 19 
CFR 351.308(c) and (d). For example, we reviewed the adequacy and 
accuracy of the information in the petition during our pre-initiation 
analysis of the petition, to the extent appropriate information was 
available for this purpose (e.g., import statistics, call reports, and 
data from business contacts). We have also determined that the adverse 
facts available petition rate has probative value by comparing this 
rate to actual sales made by KSC, the only respondent whose information 
the Department was able to verify and use for margin calculation. After 
comparing the information in the petition to KSC's verified sales data, 
we find that the petition data is reliable for use as adverse facts 
available. (See Corroboration Memorandum Detailing Application of Total 
Adverse Facts Available from James Doyle, Program Manager, to Roland 
MacDonald, Director Office VII, dated May 19, 1999.) (``Corroboration 
Memorandum'') Furthermore, no record evidence or argument has been 
submitted that would cause the Department to call into question the 
accuracy of the data in the petition. Therefore, we determine that the 
use of this margin as facts available

[[Page 30578]]

for these three companies is appropriate. For further discussion 
regarding the Department's use and selection of facts available for 
these three companies, see the Preliminary Determination, 64 FR at 115.
    In addition, in light of NSC's decision not to respond to the 
Department's December 7, 1998, supplemental cost response despite 
repeated extensions by the Department, the Department has determined 
that NSC has failed to act to the best of its ability in this 
investigation. Furthermore, NSC's failed to provide the requested cost 
information, including a large number of affiliated input suppliers, a 
breakdown of NSC costs by production process and explanations and 
clarifications regarding allocation methodologies used by NSC in 
arriving at product-specific costs. As a result, the Department was 
unable to assess whether any input constituted major inputs, whether 
collapsing certain steel grades is appropriate, as well as the 
reasonableness of the allocation methodologies used. Thus, the 
Department has determined that, in selecting from among facts 
available, an adverse inference is appropriate. Consistent with 
Department practice in cases where a respondent withdraws its 
participation in an investigation, as adverse facts available, we have 
applied the highest margin in the petition. See Comment 13 and 
Corroboration Memorandum; see also Final Determination of Sales at Less 
Than Fair Value: Vector Supercomputers From Japan, 62 FR 45623 (August 
28, 1997).

Critical Circumstances

    Section 735(a)(3) of the Act provides that if a petitioner alleges 
critical circumstances, the Department will determine whether: (A)(i) 
There is a history of dumping and material injury by reason of dumped 
imports in the United States or elsewhere of the subject merchandise; 
or (ii) the person by whom, or for whose account, the merchandise was 
imported knew or should have known that the exporter was selling the 
subject merchandise at less than its fair value and that there would be 
material injury by reason of such sales; and (B) there have been 
massive imports of the subject merchandise over a relatively short 
period.
    As discussed in our preliminary findings of critical circumstances, 
we are not aware of any antidumping order in any country on stainless 
steel sheet and strip in coils from Japan, nor has any additional 
information in this regard been placed on the record for purposes of 
the final determination. Therefore, we examined whether there was 
importer knowledge. The statute and the Statement of Administrative 
Action (``SAA''), which accompany the Uruguay Round Agreements Act, are 
silent as to how the Department is to make a finding that there was 
knowledge of less than fair value sales and the likelihood of material 
injury. Therefore, Congress has left the method of implementing this 
provision to the Department's discretion.
    In determining whether an importer knew or should have known that 
the exporter was selling the product at less than fair value, the 
Department normally considers margins of 15 percent or more sufficient 
to impute knowledge of dumping for constructed export price (``CEP'') 
sales, and margins of 25 percent or more for export price (``EP'') 
sales. See Final Determination of Sales at Less Than Fair Value: Brake 
Drums and Brake Rotors From the PRC, 62 FR 9160 (February 28, 1997). In 
this investigation, as discussed above in the Facts Available section, 
we have determined pursuant to an application of adverse facts 
available that the petition margin of 57.87 percent is probative of the 
selling practices of mandatory respondents Nisshin Steel Corporation, 
Nippon Yakin Kogyo, Nippon Metal Industries, and NSC. This margin 
indicates dumping over the 15 and 25 percent thresholds for these 
respondents' sales. In addition, the Department normally considers a 
preliminary International Trade Commission (``ITC'') determination of 
material injury sufficient to impute knowledge of likelihood of 
resultant material injury. The ITC preliminarily found material injury 
to the domestic industry due to imports of sheet and strip from Japan 
and, on this basis, the Department may impute knowledge of likelihood 
of injury to these respondents. See Preliminary Determination of the 
ITC of Certain Stainless Steel Sheet and Strip from France, Germany, 
Italy, Japan, the Republic of Korea, Mexico, Taiwan, and the United 
Kingdom, 63 FR 33092, (June 17, 1998). Thus, we determine that the 
knowledge criterion for ascertaining whether critical circumstances 
exist has been satisfied.
    Moreover, because we are applying adverse facts available to these 
four companies with respect to our final critical circumstances 
determination, we also find that imports for each of them have been 
massive. Consequently, both prongs of our critical circumstances 
analyses have been met. We further discuss our treatment of Facts 
Available/Critical Circumstances in Comment 15 below.
    We do not find critical circumstances for KSC. KSC was a 
cooperative mandatory respondent whose verified shipments did not 
evidence massive imports but, instead, showed an increase of less than 
the requisite threshold of 15 percent during the relevant comparison 
periods (January-May 1998 with June-October 1998). Although the 
Department's regulations at 19 CFR 206(i) require that we examine at 
least three months in making our determination of whether imports are 
massive, it is the Department's practice to examine the longest period 
for which information is available up until the preliminary 
determination. See Notice of Final Determination of Sales at Less Than 
Fair Value: Aramid Fiber Formed of Poly-Phenylene Terephthalamide From 
The Netherlands, 59 FR 23684, (May 6, 1994). In this case, for purposes 
of the Final Determination, available information permitted us to 
examine relevant comparison periods covering five months before and 
after the filing of the petition. Additionally, for purposes of the 
final determination we included June in the post-petition period, as it 
was incorrectly included in the pre-petition period for purposes of the 
Preliminary Determination.
    We have reconsidered our Preliminary Determination's finding as to 
the ``All Others'' category of companies and further discuss our 
treatment of the ``All Others'' category in Comment 14 below. For a 
complete discussion, see Memo from Roland MacDonald to Joe Spetrini 
regarding Final Critical Circumstances Determination, dated May 19, 
1999, (``Final Critical Circumstances Memo''). For this final 
determination, we do not find critical circumstances for the ``All 
Others'' category.

Verification

    As provided in section 782(i) of the Act, we verified the 
information submitted by KSC for use in our final determination. We 
used standard verification procedures, including examination of 
relevant accounting and production records and original source 
documents provided by KSC.

Interested Party Comments Regarding Sales Issues

Comment 1: Exclusion of Sales of Foil Products

    KSC argues that the Department should have excluded product code 
R20-5USR grade foil products, which are used for automotive catalytic 
converter applications, from its

[[Page 30579]]

preliminary margin calculation since this product meets the exclusion 
criteria as outlined in the Scope of Investigation of the Preliminary 
Determination. Further, KSC contends that the Department's verification 
findings support its claim for exclusion of these foil products. For 
instance, KSC claims that at verification, the Department reviewed 
numerous sales transactions of R20-5USR foil products, including 
production records and mill certificates. KSC argues that these 
findings prove that the R20-5USR grade foil product, previously 
included in the sales database, met all of the Department's physical 
and chemical criteria for exclusion. Thus, KSC argues that the 
merchandise is outside the scope of the investigation and therefore 
must be removed from the Department's dumping margin calculations for 
the final determination.
    Alternatively, KSC contends that if the Department decides not to 
exclude sales of foil used for automotive catalytic converter 
applications, then the Department should exclude the home market trial 
sales as being outside the ordinary course of trade. KSC argues that 
the home market sales of R20-5USR grade foil product, also classified 
as trials, are outside the ``ordinary course of trade,'' in accordance 
with the section 773(a)(1) of the Act because: (1) These sales 
represent a small percentage of the entire volume of home market sales 
of SSSS during the POI; (2) the price of the trial sales is 
aberrational; (3) the average quantity of the trial sales is an 
insignificant percentage of the average quantity of commercial sales of 
all subject merchandise during the POI; and (4) the trial sales are not 
used for commercial production by the end-users, but are used only for 
testing and evaluation purposes. For the aforementioned reasons, KSC 
contends that if the Department should decide to use R20-5USR grade 
foil in its margin analysis then the Department should exclude the home 
market trial sales from its margin analysis, on the basis of the fact 
that these sales are ``outside the ordinary course of trade'' and sold 
in non-commercial quantities.
    Petitioners' first contention is that respondent's exclusion 
request of October 15, 1998, related only to narrowly focused foil 
product sold only by Emitec, a producer. According to the petitioners, 
KSC sells a wide range of foil products falling under the R20-5USR 
designation and the evidence on the record suggests that KSC's home 
market sales of foil products do not meet the precise exclusion 
specifications agreed to by petitioners. Petitioners agree that the 
verified U.S. sales of R20-5USR meet all the ``Emitec specifications'' 
and thereby fall within the exclusion. However, petitioners argue that 
the mill certificates of the home market sales of foil products contain 
certain chemical elements but not other elements and do not clearly 
indicate that the product meets ``Emitec specifications.''
    Furthermore, petitioners assert that the cost data for foil 
products vary significantly between the export products and the 
domestic products, which they argue indicates that not all foil 
products have the same cost of production, as discussed in KSC Cost 
Verification Report at S-14. For the aforementioned reasons, 
petitioners urge the Department to limit exclusion of sales only to 
those sales of foil products that meet the precise exclusion 
requirements as defined in its October 15, 1998 submission. As a 
result, petitioners request that the Department not exclude home market 
foil products from its margin calculations as the exclusion applies 
only to a particular producer, and the home market foil products do not 
appear to meet the specifications set forth in the exclusion language. 
Petitioners' second contention is that KSC's request that its sales of 
home market foil products be excluded as being outside the ordinary 
course of trade should not be granted. Petitioners argue that these 
sales were made at arm's length regardless of the quantity sold.
    Department's Position: We agree with KSC. At verification, KSC was 
able to demonstrate that its R20-5USR products met all of the 
Department's exclusion criteria for foil products as defined in the 
Scope of Investigation of the Preliminary Determination. Specifically, 
KSC provided copies of mill certificates for a randomly selected group 
of foil sales accompanied by a ladle analysis (indicating chemical 
contents). This verification documentation demonstrates that the 
chemical content of all exclusion elements met the narrow exclusion 
requirements as defined in the Scope of Investigation of the 
Department's Preliminary Determination.
    The Department first disagrees with petitioners' application of the 
scope exclusion on a customer-specific basis. The scope of an 
antidumping duty order covers merchandise, not companies. Second, the 
Department has determined that petitioners' argument that home market 
mill certificates contain certain elements not within the scope 
exclusion is unjustified given the facts of the record. Contrary to 
this contention, we find that the evidence on the record (i.e., mill 
certificates and ladle analysis) demonstrates that each of the elements 
required by the Department's exclusion criteria, as stated in the 
Preliminary Determination, is disclosed on the home market mill 
certificates and ladle analysis for the randomly selected and verified 
foil sales. (See KSC Sales Verification Report and verification exhibit 
3.) Therefore, those chemical elements referred to by petitioners that 
were not found in the market mill certificates are not relevant to the 
question of scope. Since these sales meet the exclusion criteria, they 
do not fall within the scope as defined in the Preliminary 
Determination. Thus, we have eliminated them from the final 
determination margin calculations because we determine that these sales 
meet the exclusion criteria, we do not need to address respondent's 
ordinary course of trade argument.

Comment 2: Proper Application of the Arm's Length Test

    KSC claims that the Department erred in its application of the 
arm's length test by testing sales on a sales destination basis, rather 
than on a customer basis. According to KSC, the Department's normal 
practice is to compare overall weighted average home market net prices 
for each control number sold to affiliated customers with the overall 
weighted average home market net prices for each control number sold to 
unaffiliated customers. KSC argues that the Department performed its 
arm's length test for sales to affiliated customers for each delivery 
point, as each delivery point has a unique customer code in KSC's sales 
database, rather than aggregating the delivery points maintained by one 
particular customer. KSC claims that the arm's length test should have 
been performed by customer taking into account the customer's various 
delivery points in determining the appropriate comparison price. Hence, 
KSC asserts that the Department should perform this test on an 
affiliated customer-specific basis, rather than on a destination-
specific basis.
    In response, petitioners note that KSC failed to indicate that its 
reported customer codes are ``commingled'' with customers'' delivery 
locations in its questionnaire response. Further, petitioners contend 
that the data on the record contradict KSC's assertion that an 
affiliated customer may have numerous delivery points as reflected in 
the multiple codes assigned to the customer. First, petitioners claim 
that not all of the delivery locations for each home market sale were 
reported. Second, petitioners argue with KSC's contention that each 
customer code

[[Page 30580]]

signifies a particular destination point since a specific customer code 
is reported to have more than one destination point related to it and 
certain customer codes share the same destination point as reflected in 
KSC's home market sales database. In light of the above contradictions 
to KSC's claim, petitioners argue that the Department should continue 
to use the existing customer codes in KSC's home market database as in 
the Department's Preliminary Determination.
    Department's Position: We agree with KSC. Although KSC could have 
explained that its individual customer codes may at times reference the 
same customer at a different location by a different customer code, the 
necessary factual information has already been presented on the record 
in the Section B and C responses. Further, the Department did not find 
any discrepancies with the reporting of customers or delivery locations 
at verification. Hence, we have no reason to suspect that the 
information in regard the destination data field (i.e., DESTH) is in 
error in the sales databases. Finally, the Department attempts to 
calculate margins as accurately as possible and this inadvertent 
oversight by KSC and the Department will be corrected by using 
information on the record. Accordingly, we have corrected our arm's 
length program and tested the prices on a customer basis rather than an 
individual customer delivery location basis.

Comment 3: Proper Implementation of Level of Trade Analysis

    KSC argues that the Department should recognize that KSC's sales to 
all end-users are classified as a separate level of trade regardless of 
whether the end-user is a customer of KSC or Kawasho, an affiliated 
party of KSC. KSC contends that Kawasho's sales to its end-users 
exhibit the same differences in selling functions as KSC's sales to its 
end-users. In addition, KSC claims that the Department found no 
discrepancies in its review of the framework agreement between KSC and 
its end-users and the distinct sales functions performed by Kawasho to 
its end-users. According to KSC, these distinctions in selling 
functions, as examined during the course of verification, warrant two 
separate levels of trade. Kawasaki argues that because sales to trading 
companies were at the same LOT in both markets, the Department should 
match U.S. sales to trading companies with normal values derived from 
home market sales to trading companies, citing Notice of Preliminary 
Determination of Sales Less than Fair Value: Certain Welded Carbon 
Steel Pipe and Tube from Turkey, 63 FR 6155, 6158 (February 6, 1998) 
(``We first attempted to compare sales at the U.S. level of trade to 
sales at the identical home market level of trade. If no match was 
available at the same level of trade, we attempted to compare sales at 
the U.S. level of trade to sales at the second home market level of 
trade.''); Certain Stainless Steel Wire Rods From France Final Results 
of Antidumping Duty Administrative Review, 61 FR 47874, 47880 
(September 11, 1996) (same). Thus, KSC urges that sales to end users 
should be segregated from sales to trading companies.
    Petitioners did not comment on this issue.
    Department's Position: As discussed in the Department's Preliminary 
Determination, 64 FR at 114, 115, we disagree with KSC for the 
following reasons. To determine whether normal value was established at 
a different LOT than KSC's EP sales, we examined stages in the 
marketing process and selling functions along the chain of distribution 
between KSC and its U.S. customers, and then compared those functions 
to the two LOTs that we previously identified in the home market 
(``HM''). In the U.S., we identified a single channel of distribution: 
sales from KSC to the unaffiliated Japanese trading companies. In the 
HM, we identified two channels of distribution: (1) Sales from KSC to 
end-users; and (2) sales from KSC to all trading companies (affiliated 
and unaffiliated). In examining the LOTs of the HM sales at 
verification, we verified that KSC conducted price negotiations, 
communications with customers, payment collection activity, and 
warranty activity with its end-users. In contrast, KSC did not perform 
these same sales functions with respect to sales to both affiliated and 
unaffiliated trading companies. In our comparison of sales function of 
KSC to affiliated trading companies and then to unaffiliated customers 
(end-users/distributors), we noted that KSC's affiliated trading 
companies gathered market intelligence and customer information, made 
customer contacts, and performed marketing services, price 
negotiations, warehousing, processing, payment collection activity, and 
warranty activity. Based on the above-referenced distinctions between 
the selling functions of KSC to end-users and those of KSC to 
affiliated trading companies, and then to unaffiliated customers, we 
consider the respondent's request that the Department treat KSC's sales 
to all end-users as one level of trade to be unpersuasive. Finally, 
because the Department found no ``consistent price differences between 
the sales on which NV is based and comparison markets sales at the LOT 
of the export transaction,'' we found that no LOT adjustment or offset 
was necessary for NV in the event that U.S. sales (KSC sales to 
unaffiliated trading companies) were compared to home market sales made 
at a different LOT (KSC sales to end-users) as demonstrated in the 
Preliminary Determination Pattern of Price Program results. For a 
discussion of the Department's practice concerning level of trade 
adjustments, see Notice of Final Determination of Sales at Less than 
Fair Value: Stainless Steel Plate in Coils from the Republic of Korea, 
64 FR 15444, 15445 (March 31, 1999) (``If the comparison market sales 
are at a different LOT, and the difference affects price comparability, 
as manifested in a pattern of consistent price differences between the 
sales in which NV is based and comparison market sales at the LOT of 
the export transaction, we make a LOT adjustment * * *''). Therefore, 
for this final determination, in accordance with section 773(a)(7)(A) 
of the Act, we maintain our preliminary position with regard to KSC's 
level of trade analysis.

Comment 4: Rolled-On or Hard Finish With 2B Finish

    Petitioners argue that the Department should collapse the finish 
codes 7 and 9 into 2B finish as these finish codes are broad and lack 
profound distinctions to justify separate categories. Citing Final 
Determination of Sales at Less Than Fair Value: Emulsion Styrene-
Butadiene Rubber from Mexico, 64 FR 14872, 14875 (March 29, 1999) 
(``Emulsion Styrene-Butadiene''), petitioners suggest that subtle 
differences may exist among various finish codes; however, the 
underlying intention of the model match program is not to recognize 
each distinction between a product but rather to distinguish the major 
physical differences in the merchandise.
    Petitioners urge the Department to treat finish codes 7 (Rolled-On) 
and 9 (Hard Finish) as a consolidated finish code 2B (temper rolled or 
skin passed) in its final determination due to the similarity of the 
products and the fact that these two codes are not in KSC's product 
brochure which is used in KSC's normal course of business. Moreover, 
petitioners cite Rautaruukki Oy v. United States, Slip Op. 98-112 at 14 
arguing that a respondent may not unilaterally alter the physical 
characteristics of the Department's model match methodology.
    KSC responds that it did not ``unilaterally'' alter the product 
codes,

[[Page 30581]]

since the Department's model match criteria in the questionnaire 
specifically lists code 7, ``Rolled-On,'' as a distinct finish, and 
further requested respondent to specify distinct finishes other than 
those specifically listed in the questionnaire. Instead, KSC notes that 
the individual specifications of these finishes were demonstrated with 
support documentation at verification. KSC argues that the products 
with finish code 7 and finish code 9 undergo separate production 
processes according to customer specifications on finishes. KSC argues 
further that there is a lack of evidence on the record to suggest that 
KSC's rolled-on or hard finishes are identical to 2B finish.
    With respect to petitioners' comment that finish codes 7 and 9 were 
not mentioned in KSC's product brochure, KSC argues that it provides 
numerous ``bona fide'' grades and options that are not listed in the 
main product brochure to its customers. According to KSC, the product 
brochure features only the most popular grades and options and by no 
means dictates the types of grades and options that it produces for its 
customer.
    Finally, KSC stresses that if the Department decides to consolidate 
these finish codes, it would be necessary to recalculate CONNUM-
specific costs, imposing burdensome programming calculations and 
increasing the risk of clerical errors. Therefore, KSC argues that the 
Department should not deem it appropriate to consolidate these two 
finishes into 2B, and its statement in the verification report should 
be read as ``most similar'' to 2B rather than identical.
    Department's Position: We agree with KSC. In accordance with 
section 771(16)(A) of the Act, the Department's selection of 
appropriate matching criteria was based on meaningful physical 
characteristics and the comments of the parties. See Emulsion Styrene 
Butadiene. As part of the criteria selection process, the Department's 
original antidumping questionnaire in this investigation specifically 
asked KSC to report ``Rolled-On'' (code 7) and ``Other'' (code 9). 
Pursuant to the questionnaire instructions, KSC reported finish code 7 
and code 9 in its sales database and constructed CONNUM-specific costs 
accordingly. During verification, we noted that KSC offers code 7 and 
code 9 finish treatments in its ordinary course of business even though 
these specific finishes are not listed in its finish brochure. (See KSC 
Sales Verification Report at 8 and Exhibit 3 of the verification 
exhibits.) Despite the overall similarities shared by code 7, code 9 
and 2B finish, we examined technical documentation for finish code 7 
and internal specifications for code 9, and determined that code 7 and 
code 9 were distinctly different finishes from 2B. In addition, during 
verification, we reviewed sales documentation indicating both types of 
finishes. Accordingly, we have maintained our treatment of code 7 and 
code 9 as distinct finish codes from code 2B for the final 
determination.

Comment 5: Advertising and Technical Service Expenses

    KSC argues that it classified home market advertising and technical 
services as direct selling expenses in its questionnaire response; yet 
the Department inadvertently reclassified these expenses as indirect 
selling expenses in its Preliminary Determination margin calculations. 
KSC notes that, in response to the Department's questionnaire 
instructions, it classified only the technical service expense as 
direct expense.
    KSC contends that nothing in the Department's sales verification 
report contradicts KSC's classification that these expenses are direct. 
Instead, numerous documents in the verification exhibits demonstrate 
the nature of these expenses as being direct. See KSC Sales 
Verification Report at 18-19.
    Petitioners argue that KSC's reported home market advertising and 
technical service expenses were not directly related to the subject 
merchandise, and thus were not direct expenses.
    In addition, petitioners maintain that none of the advertisements 
on the record referred directly to the subject merchandise. Rather, the 
advertisements referred to stainless steel products in general and 
covered grades of subject merchandise that were either not subject 
merchandise or represented an insignificant percentage of KSC's total 
home market sales during the POI. Further, petitioners argue that KSC's 
home market advertisements were not directly aimed at the users of the 
subject merchandise sold during the POI, but to KSC's customers for 
stainless products in general.
    With respect to technical service expenses, petitioners argue that 
the record suggests that a calculation worksheet from the verification 
demonstrates that KSC's financial accounting system captures technical 
service expense for subject and non-subject merchandise under the same 
cost center, even though KSC used the home market SSSS sales value as 
the denominator for its technical service expense calculation. Thus, 
petitioners assert that such expenses are not variable costs. 
Petitioners cite to the Notice of Final Results of Antidumping Duty 
Administrative Review for Certain Internal-Combustion Industrial 
Forklift Trucks from Japan, (``Industrial Forklift Trucks from Japan'') 
62 FR 5592, 5607-5608 (February 6, 1997) arguing that the Department 
considers expenses as direct expenses if these expenses vary with the 
sale of a subject merchandise.
    KSC rebuts petitioners' argument that KSC's direct selling expenses 
should be treated as indirect on the basis that these expenses are 
related to the trading company's sale to its customer, rather than 
KSC's sale to the trading company. According to KSC, the Department has 
consistently treated manufacturer's expenses made on behalf of end-
users as direct, citing the Department's questionnaire at Appendix I at 
1-6, Notice of Final Determination of Sales at Less Than Fair Value: 
Stainless Steel Wire Rod from Japan (``Stainless Steel Wire Rod''), 63 
FR 40434, 40437 (July 29, 1998); Notice of Final Determination of Sales 
at Less Than Fair Value: Stainless Steel Plate in Coils from South 
Africa, 64 FR 15459, 15469 (Mar. 31, 1999) (disallowing advertising 
expense as a direct expense, because advertising was directed at 
respondent's direct customer, rather than at customer's customer); and 
Notice of Final Determination of Sales at Less than Fair Value: Calcium 
Aluminate Cement, Cement Clinker and Flux from France, 59 FR 14136, 
14145 (March 25, 1994). Similarly, KSC contends that its home market 
advertising and technical service expenses should be considered direct 
as indicated in the Sales Verification Report. Regarding technical 
service expenses, KSC argues that technical service expenses should be 
classified as direct expenses since KSC incurred those expenses in 
connection with particular sales.
    Department's Position: We agree, in part, with KSC. Based on the 
record evidence in this investigation and the information examined at 
verification, we have determined that KSC's reported advertising 
expenses apply to all stainless steel products, including subject and 
non-subject merchandise, and were incurred on behalf of KSC's customer. 
In accordance with the Department's practice, in determining whether 
advertising expenses directly tie to particular sales, we applied the 
two-prong test used in Final Determination of Sales at Less than Fair 
Value: Antifriction Bearings Other than Tapered Roller Bearings and 
Parts Thereof from France, Germany, Italy, Japan, Singapore, and the 
United Kingdom (``AFB's''), 62 FR 2102-2104 (January 15, 1997). In 
AFB's, the

[[Page 30582]]

Department stated that ``for advertising to be treated as a direct 
expense, it must be incurred on products under review and assumed on 
behalf of the respondent's customer; that is, it must be shown to be 
directed toward the customer's customer.'' Id.; See also Stainless 
Steel Wire Rod from Japan, 63 FR at 40437 (Department will treat 
expenses as direct expenses if they can be directly tied to specific 
sales). As evidenced by documentation gathered at verification in 
Exhibit 7 of the verification exhibits and KSC Sales Verification 
Report, we examined samples of brochures directed to the end-user's 
product design needs, invoices for advertisements concerning KSC's 
environmental safety record, invoices for advertisements for a 
particular company, as well as brochures directed at construction 
application uses. At verification, KSC provided sufficient 
documentation that the advertising expenses in question relate to 
subject merchandise and target the customer's customer. (See KSC Sales 
Verification Report at 4-11). Accordingly, we have reclassified KSC's 
advertising expenses as direct selling expenses for the purpose of the 
final determination. This is consistent with our determination in 
Stainless Steel Wire Rod.
    With respect to technical service expenses, there is nothing on the 
record to support petitioners claims. Furthermore, the case cited by 
petitioners, Industrial Forklift Trucks from Japan, is factually 
distinguishable from this case as the respondent in that case stated 
that its technical service ``expenses are all expenses and do not 
relate to specific sales.'' 62 FR at 5605. Furthermore, there is 
nothing on the record to support petitioners' position that the 
technical expense did not vary with the sale of subject merchandise. 
Accordingly, we reclassified KSC's technical service expenses as direct 
selling expenses for the final determination.
    With regard to petitioners' assertion that KSC used the home market 
SSSS sales value as the denominator for its technical service expense 
calculation despite KSC's assignment of technical service expenses to 
one cost center, we agree with the petitioners and accordingly revised 
the reported per-unit technical service expense. In order to properly 
reflect the portion of the total technical service and advertising 
expense associated with the subject merchandise, we calculated a ratio 
by dividing the sales of subject merchandise by total sales of 
stainless steel products, and applied the ratio to the total respective 
verified technical service and advertising expense amounts for the 
stainless steel products.

Comment 6: Home Market Advertising Expenses

    Petitioners argue that the Department should apply the revised 
advertising expense ratios to KSC's respective sales databases for its 
final determination. Additionally, the Department should reject KSC's 
correction to the advertising expense for a certain home market sale 
observation because this particular reported advertising expense 
contradicts other information on the record. Petitioners further claim 
that KSC may not use an allocation methodology for some sales but 
choose actual expenses for others.
    KSC rebuts petitioners' argument that home market advertising 
expenses be recalculated on newspapers alone, on the basis that the 
home market advertising expense comprises not only the newspaper 
expense but also catalogue and other advertising expenses. KSC adds, as 
a result, that the home market advertising expense ratio should remain 
the same, reflecting the total sum of catalogue, newspaper and 
advertising expense. In addition, KSC urges that the Department deny 
petitioners' request that HM observation 400 be corrected, pointing to 
the verified sales data which support KSC's corrected advertising 
value.
    Department's Position: The Department agrees with KSC in that the 
advertising expenses should be used as reported to the Department since 
this expense was verified. Additionally, the Department has taken into 
account the minor corrections presented at verification. At 
verification, we found no inconsistencies in KSC's reporting of its 
advertising expense. See KSC Sales Verification Report at 18. Further, 
the Department has determined that the value reported for the 
particular home market sale in question corresponds to the verified 
expense ratios. Thus, we have not corrected this observation.

Comment 7: Correction of Errors in KSC's Weighted-Average Cost 
Calculation for Certain Products

    Petitioners argue that in the process of recalculating the value of 
financial expenses in its preliminary margin analysis, the Department 
miscalculated the financial expenses for constructed value by applying 
the financial expenses ratio to KSC's reported financial expenses, 
rather than to KSC's reported cost of manufacturing for CV. Thus, 
petitioners claim, the Department should revise KSC's margin 
calculation program by multiplying the revised total cost of 
manufacturing for CV by the revised financial expense ratio.
    KSC agrees with this change.
    Department's Position: We agree with the proposed change and have 
corrected this inadvertent error in this final determination. (See Cost 
Calculation Memo).

Comment 8: KSC's Sales to Unaffiliated Trading Companies as Separate 
Transactions

    Petitioners assert that the information on the record indicates 
that the trading company's role is limited to conveying the end-user's 
order requests and KSC's acceptance or counter-offer to the end-user. 
Petitioners argue that the trading companies' roles are similar to that 
of commissioned agents, and thus the Department should not establish 
the normal value on the sales price between KSC and the trading 
company. Instead, petitioners urge the Department to rely on the price 
paid by the end-user or, in the absence of such information, the 
Department add an amount for the commission to the sales price reported 
by KSC to calculate normal value for KSC's home market sales.
    Petitioners contend that if the Department views the transaction 
between the trading company and the end-user as a separate transaction, 
the Department should then recognize the expenses incurred by KSC on 
its sales to trading companies as indirect selling expenses, rather 
than direct selling expenses, on the basis that the services associated 
with these expenses pertain to ``downstream'' sales and thereby 
directly benefit the end-user and not the trading company, citing 
Notice of Final Results of Antidumping Duty Administrative Reviews: 
Antifriction Bearings (Other Than Tapered Roller Bearings) and Parts 
Thereof from France, Germany, Italy, Japan, Romania, Singapore, Sweden, 
and the United Kingdom, 62 FR, 54042, 54054 (October 17, 1997); and 
Notice of Final Determination of Sales at Less than Fair Value: 
Stainless Steel Wire Rod from Japan, 63 FR 40434, 40436 (July 29, 
1998). Petitioners request that the Department treat those expenses 
that are not part of the negotiated deal between KSC and the trading 
companies as indirect selling expenses in KSC's margin calculation 
analysis.
    KSC argues that the record demonstrates that the unaffiliated 
trading companies are customers of KSC, rather than ``commissioned 
sales agents. In support, KSC notes that the Department reviewed the 
framework agreements for its unaffiliated trading companies as well as 
contracts demonstrating that KSC makes bona fide

[[Page 30583]]

sales to the trading companies. (See KSC Sales Verification Report and 
verification exhibit 4.) Furthermore, KSC adds that the sales reviewed 
by the Department at verification demonstrated that KSC issues an order 
confirmation and an invoice to its trading company customer and records 
the invoice amount to the trading company in its financial accounting 
system. KSC notes that the obligation to pay KSC rests with the trading 
company and not on the condition that the trading company receive 
payment from its downstream customer for payment to KSC. KSC further 
stresses that the trading companies take title to the goods and are 
solely responsible for the resale transaction, issue order 
confirmations and invoices to their customers, and bear the full 
responsibility of a resale profit or loss on their sale. Finally, KSC 
argues that, because the sales to the trading companies are actual bona 
fide sales, the Department may not disregard those sales. KSC stresses 
that the Department practice is to use manufacturers' sales to trading 
companies, even in instances where the manufacturers ships the goods 
directly to the customers of the trading companies. See Stainless Steel 
Wire Rod from Taiwan, 63 FR 40461, 40470 (Jul. 29, 1998), and Stainless 
Steel Plate in Coils from South Africa, 64 FR 15459, 15467 (Mar. 31, 
1999).
    Department's Position: We agree with KSC. At verification, the 
Department found that the trading company obtains title to goods and 
has direct responsibility for payment to KSC for merchandise sold to 
the customer of the trading company even if the customer defaults on 
its payment. See KSC Sales Verification Report at 5. Additionally, our 
examination of KSC's sales process did not demonstrate that the trading 
companies assume the role of commissioned agents. At verification, KSC 
stated that trading companies undertake their own sales negotiations 
with their customers, issue separate order confirmations and sales 
invoices and take title of goods purchased from KSC. See KSC Sales 
Verification Report at 3. Thus, we have not changed our treatment of NV 
sales for the final determination.

Comment 9: Actual vs. Budgeted Brokerage and Handling Expenses for 
KSC's U.S. Sales

    Petitioners contend that the Department should rely on the actual 
brokerage and handling expenses reported in Verification Exhibit 9 
rather than KSC's budgeted brokerage and handling expenses. According 
to petitioners, a review of KSC's most recent U.S. sales listing 
demonstrates that the verified brokerage and handling expenses were not 
reported to the Department. Instead, KSC reported budgeted brokerage 
and handling costs for its U.S. sales.
    KSC finds no basis for the petitioners' assertion that KSC applied 
budgeted rather than actual brokerage and handling expenses. In fact, 
KSC argues that the petitioners misconstrued the brokerage and handling 
expense calculation in Verification Exhibit 9, as the Department found 
values from this worksheet to be actual and calculated on a bi-annual 
basis. KSC acknowledges that its original calculation contained errors 
that needed to be revised; however, it argues that neither the original 
calculation nor the revised calculation were based on budgeted values. 
In addition, KSC contends that the Department tested the integrity of 
the calculation worksheets, during verification and found no 
inconsistencies in the calculation worksheets, with the exception of a 
clerical error presented at the beginning of verification. As a result, 
KSC concludes that the revised and actual brokerage and handling 
expenses should be used by the Department.
    Department's Position: We agree with the respondent. Although KSC 
reported brokerage and handling expense values in its January 25, 1999 
sales listing that were different from those verified, we were able to 
confirm the accuracy of the per-unit brokerage and handling expenses 
submitted at the time of verification by obtaining support 
documentation and reconciling those values to KSC's financial 
accounting system. (See KSC Sales Verification Report at 13-15). We 
further note that our findings at verification clearly demonstrate that 
the verified brokerage and handling amounts are actual and not 
budgeted. Thus, for the purpose of the final determination, we will use 
KSC's verified brokerage and handling expenses as submitted on April 
13, 1999.

Comment 10: Verified Inland Insurance Amounts for KSC's Home Market and 
U.S. Sales

    Petitioners argue that some of KSC's reported inland insurance 
amount exceeded the maximum amount of verified home market inland 
insurance expense for home market sales and fell below the minium 
verified value for certain U.S. sales. Petitioners contend that in 
instances where KSC reported incorrect inland insurance amounts, the 
Department should apply adverse facts available to those sales. As 
facts available, petitioners argue that the Department should assign a 
zero to those home market sales with reported inland insurance greater 
than the maximum verified amount, and the maximum amount for those 
sales that were reported to have an inland insurance expense lower than 
the minimum verified amount.
    KSC explains that the higher and lower per-unit values exist simply 
as a result of KSC's use of multiple invoices as was verified by the 
Department. KSC contends that the per-unit values for certain sales 
would be less where not all invoices issued against a given order had 
insurance charges, indicating that not all of the quantity for the 
particular order incurred inland insurance charges. KSC states that, 
even though insurance charges are incurred on an invoice-specific 
basis, KSC's allocation of the total insurance charges for a particular 
order over the total quantity of that order is consistent with its 
freight calculation methodology. Further, KSC emphasizes the relative 
insignificance of the alleged inconsistencies, as they only apply to 
four home market sales and may potentially apply only to twenty eight 
U.S. sales. KSC suggests that even if the Department views these 
inconsistencies as errors, the Department should either ignore them or 
assign the mean of the home market and U.S. insurance expenses to those 
sales, rather than apply any punitive facts available, citing Notice of 
Final Determination of Sales Less than Fair Value: Stainless Steel 
Plate in Coils from Belgium, 64 FR 15476 (March 31, 1999).
    Department's Position: We agree with the petitioners. As noted by 
the petitioners, KSC incorrectly reported inland insurance values for 
certain home market sales with amounts below the minimum value and 
those exceeding the maximum value for inland insurance. KSC's argument 
that its inland insurance calculation methodology is consistent with 
that of inland freight is without merit. We note that our findings are 
in contrast to KSC's claim that the per-unit insurance expense was 
derived by allocating total insurance charges to order quantity. As the 
Department examined at verification, and as KSC demonstrated in its 
exhibits, the per-unit inland insurance expense is a contract-based 
amount, with rates that varied on the designated market of the sale 
(i.e., home market vs. export market) and location (i.e., Nishinomiya 
plant vs. Chiba Works) in which the merchandise was produced. (See KSC 
Sales Verification Report at 10-11.) Moreover, our comparison of the 
home market sales database to the inland insurance

[[Page 30584]]

expense values submitted at verification confirm these alleged 
inconsistencies in KSC's sales data. Therefore, as facts available for 
the final determination, we have accounted for the existing 
inconsistencies by assigning the average inland insurance rate to those 
home market and U.S. sales with reported inland insurance greater than 
the maximum verified amount and to those sales that were reported to 
have an insurance expense lower than the minimum verified amount.

Comment 11: KSC Misreported Inland Freight Expense for Certain U.S. 
Sales

    Petitioners argue that a comparison of per-unit inland freight 
expense on a particular sale from the verification exhibit to KSC's 
January 25, 1999 sales listing reveals that the revised inland freight 
expense remains incorrect. Petitioners contend that even though the 
total freight expense for the U.S. sale in question is correct, the 
verified shipment quantity does not match the reported shipment 
quantity on this particular sale. Thus, the Department should use the 
total reported quantity for this particular sale on the sales listing 
rather than the total shipment quantity that the Department examined 
during verification. Petitioners point out that the revised allocation 
base will produce results comparable to inland freight expenses of 
other U.S. sales while conforming to the overall allocation methodology 
used to calculate inland freight expenses.
    KSC argues that petitioners have misunderstood KSC's order-based 
freight calculations, explaining that the per-unit expense on sales 
covered by that specific order is based on the order quantity for each 
delivery. KSC reiterates that the Department reviewed relevant 
supporting documentation and was able to tie KSC's reported inland 
freight expenses to its financial accounting system. For the purposes 
of the final determination, KSC urges the Department to continue using 
its verified freight information.
    Department's Position: We agree with KSC. At verification, we 
confirmed that KSC allocates its total inland freight charges on an 
order-specific basis rather than on an invoice-specific basis. We again 
reviewed Exhibit 10 in regards to the noted invoice and have confirmed 
that the per order calculation is correct. It appears that petitioners 
neglected to include one invoice of the affected order in their 
calculation. Thus, we are using KSC's submitted information for this 
invoice.

Comment 12: Duty Drawback

    Petitioners argue that KSC's duty drawback calculation is 
erroneous. According to petitioners, KSC applied the duty rate to the 
total consumption value without duty to derive a duty-inclusive total 
consumption value. KSC then used the difference in the unit prices with 
and without duty as the per-unit value for duty savings. The duty 
inclusive total consumption value after the application of the duty 
rate to the total consumption value is different from the value 
verified by the Department. Petitioners assert that this mathematical 
error improperly increases the per-unit value of duty drawback. 
Petitioners request that the Department use KSC's recalculated per-unit 
duty saving value for chromium to correct this mathematical error.
    KSC agrees with the petitioners' recalculation of duty drawback and 
with their suggested programming language to correct KSC's inadvertent 
error.
    Department's Position: We agree with petitioners and KSC. For the 
purpose of the final determination, we have continued to rely on KSC's 
duty drawback calculation methodology while adjusting appropriately for 
the mathematical error on KSC's part.

Comment 13: Facts Available for NSC

    Petitioners contend that the Department should rely on total 
adverse facts available for NSC in the final determination. Petitioners 
argue that due to NSC's failure to submit cost information and, as a 
result, the Department's inability to verify any portion of NSC's 
response, the Department should rely on facts available. Petitioners 
note that on prior occasions the Department has found that an inability 
to utilize cost data results in the inability to use the sales data. 
NSC contends that to assess an adverse facts available rate would be to 
ignore its ``substantial compliance'' with the Department's requests 
and also the reasons for which NSC was unable to respond to the 
Supplemental D questionnaire. NSC asserts that it did in fact act to 
the best of its ability and that the Department should assess a non-
punitive facts available rate for NSC, using the average margin 
calculated in the petition. NSC cites to the preamble to the 
Department's regulations which state that ``the Department will 
consider whether a failure to respond was due to practical difficulties 
that made the company unable to respond by the specified deadline.'' 62 
FR 27296, 27340 (May 19, 1997). NSC states that to assess the same 
punitive margin to it as that assigned to the totally non-responsive 
companies is unfair and would not be consistent with the meaning of the 
facts available provision. Furthermore, in one instance, the Department 
used the weighted average petition rate to calculate the final margin 
where the company had not responded completely and the Department was 
not able to verify some of the data. See Notice of Final Determination 
of Sales Less than Fair Value: Certain Welded Carbon Steel Pipes and 
Tubes from Thailand, 62 FR 53808 (October16, 1997).
    Department's Position: We agree with the petitioners that the 
highest rate alleged in the petition, and corroborated by the 
Department, is the appropriate facts available rate for NSC in this 
determination. Although NSC cooperated with the Department until the 
deadline for the section D supplemental response, NSC has not 
cooperated with the Department's request for cost of production 
information, which is essential to our dumping analysis. The 
supplemental section D questionnaire requested: (1) Detailed 
information on NSC's large number of affiliated input suppliers; (2) a 
breakdown of NSC's costs by production process; and (3) explanations 
and clarification regarding allocation methodologies used by NSC in 
arriving at product-specific costs from NSC's more aggregated 
accounting records. Absent the affiliated input data, we are unable to 
determine whether transfer prices between the affiliates occurred at 
market prices in accordance with section 773(f)(2) of the Act. 
Moreover, we are unable to assess whether any of these inputs from 
affiliated parties constituted major inputs. If major inputs are found 
by the Department to have been used in the production of subject 
merchandise, we would need the appropriate affiliated suppliers' actual 
costs of production in accordance with section 773(f)(3) of the Act. 
With respect to our request for cost information disaggregated 
according to the stages of the production process, without this 
information, we are unable to collapse steel grades where appropriate 
(as we are doing with other respondents in the other SSSS cases), 
unable to analyze the validity of the reported product-specific data, 
and unable to adequately plan for verification. Thus, this data 
omission rendered NSC's response unusable for the cost of production 
analysis (i.e., the Department is unable to determine whether home 
market sales were made at prices at or above production costs) and, as 
a result, for margin analysis.
    The Department's practice has been to reject a respondent's 
submitted information in toto when flawed and

[[Page 30585]]

unreliable cost data renders any price-to-price comparison impossible. 
See, e.g., Preliminary Results of Antidumping Duty Administrative 
Review: Certain Cut-to-Length Carbon Steel Plate from Mexico, 63 FR 
48181, 48183 (September 9, 1998); and Notice of Final Determination of 
Sales at Less Than Fair Value: Grain Oriented Electrical Steel From 
Italy, 59 FR 33952 (July 1, 1994). The rejection of a respondent's 
questionnaire response is particularly appropriate and consistent with 
Department practice in instances where a respondent failed completely 
to provide verifiable COP information. Id.; see also Final Results of 
Antidumping Duty Administrative Review: Certain Corrosion-Resistant 
Carbon Steel Flat Products from Korea, 61 FR 18547, 18559 (April 26, 
1996) (use of total BIA warranted where reliable price-to-price 
comparisons are not possible). Therefore, where a respondent's failure 
to respond is so substantial as to require analysis based upon total 
facts available the Department will not then selectively review subsets 
of data provided by the respondent.

Comment 14: Critical Circumstances for ``All Others''

    Sumitomo Metal Industries, Ltd. (``SMI'') argues that the 
Department should not find critical circumstances with respect to it in 
the final determination. SMI argues that the Department chose not to 
investigate SMI because of the administrative burden to the Department, 
yet nonetheless applied its preliminary affirmative critical 
circumstances finding to imports by SMI. Sumitomo argues that, as a 
cooperative non-selected respondent, it is entitled to a negative final 
critical circumstances determination. See Preliminary Determination of 
Critical Circumstances: Brake Drums and Brake Rotors from The People's 
Republic of China, 61 FR 55269, 55270 (Oct. 25, 1996). SMI argues that 
it is the Department's practice not to issue final affirmative critical 
circumstances with regard to cooperative non-selected companies. SMI 
also cites to the Department's decision in Honey from the People's 
Republic of China, 60 FR 29824, 29825 (Jun. 6, 1995) noting that the 
Department determined that it was not appropriate ``to penalize 
respondents whose individual data have not been analyzed due to the 
Department's own administrative constraints.'' In addition, SMI argues 
that even though the company falls within the ``all others'' category, 
the Department must consider its shipment data for purposes of 
determining whether there were massive imports.
    Department's Position: With regard to the ``all others'' category 
(i.e., companies that were not analyzed in this investigation, e.g., 
SMI) we have reconsidered our Preliminary Determination finding of 
critical circumstances. In order to determine whether a finding of 
critical circumstances is appropriate with respect to uninvestigated 
exporters, it is the Department's normal practice to conduct its 
analysis based on the experience of investigated companies. See Notice 
of Final Determination of Sales at Less Than Fair Value: Certain Steel 
Concrete Reinforcing Bars from Turkey, (``Rebars from Turkey'') 62 FR 
9737, 9741 (Mar. 4, 1997). In addition, in the instant case, while we 
have found affirmative critical circumstances for four of the five 
respondents, we did not extend our affirmative critical circumstances 
findings to the ``all others'' category, because these companies 
received affirmative critical circumstances based on adverse facts 
available. In Rebars from Turkey, the Department found critical 
circumstances for the ``all others'' category because it found critical 
circumstances for three of the four companies investigated. However, as 
we most recently determined in Notice of Final Determination of Sales 
at Less Than Fair Value: Hot-Rolled Flat-Rolled Carbon-Quality Steel 
Products from Japan, 64 FR 24329 (May 6, 1999) (``Hot-Rolled Steel from 
Japan''), we are concerned that literally applying that approach could 
produce anomalous results in certain cases. We believe it would be 
inappropriate to extend the Department's application of adverse facts 
available to ``all others'' for purposes of making a critical 
circumstances determination where there is verified data for an 
investigated company. Instead, we find that it is appropriate in this 
case to apply the traditional critical circumstances criteria to the 
``all others'' category. For further discussion regarding the criteria 
considered when determining critical circumstances see Comment 15.
    First, in determining knowledge of dumping, we look to the ``all 
others'' rate, which is based on the weighted-average rate of all 
investigated companies. In this case, such a weighted-average rate 
must, of necessity, be based on the individual rate of KSC, the only 
investigated company that did not receive adverse facts available in 
this investigation. KSC's rate, applied to the ``all others,'' is 37.13 
percent. This rate is high enough to impute knowledge of dumping to the 
``all others'' category. Furthermore, on the basis of the ITC's 
preliminary material injury determination, we also find that importers 
knew or should have known that there would be material injury from the 
dumped merchandise.
    Second, we also must also evaluate the second prong of the critical 
circumstances criteria: whether there have been ``massive imports'' for 
the ``all others'' companies. In making this determination, we examined 
the verified company-specific shipment data provided by KSC, the only 
investigated company that did not receive adverse facts available in 
this investigation. KSC's data showed an increase of less than 15 
percent during the relevant comparison periods, and we therefore found 
that KSC's data provided no evidence of massive imports. In accordance 
with our decision in Hot-Rolled Steel from Japan, we also considered 
U.S. Customs data on overall imports from Japan of the products at 
issue. These statistics, however, cover numerous HTS categories that 
include merchandise other than subject merchandise. As such, we have 
not relied on this data in making our ``massive imports'' determination 
for ``all others.'' Based on our review of KSC's data on massive 
imports, we find that imports from uninvestigated exporters, (e.g., 
``all others'') were also not massive during the relevant comparison 
periods. Given these factors, the Department determines that there are 
no critical circumstances with regard to ``all other'' imports of SSSS 
from Japan. For a complete discussion of the data examined, see the 
Department's Final Critical Circumstances Memo, dated May 19, 1999.

Comment 15: Fact Available/Critical Circumstances

    Petitioners argue that the Department should use adverse facts 
available with respect to critical circumstances for the non-responding 
exporters. As for NSC, petitioners contend that a non-responsive 
company should not be able to manipulate or selectively respond to the 
Department's questionnaire and benefit as a result. See Carbon Steel 
Plate from Mexico and Pistachio Group of the Association of Food 
Industries v. United States, 11 CIT 668, 671 F. Supp. 31 (1987). 
Petitioners further argue that NSC, Nisshin Steel Co., Nippon Yakin 
Kogyo, and Nippon Metal Industries chose not to respond to the 
Department and should not be rewarded for the section that they 
responded to because they deemed it as beneficial to their company 
while remaining non-responsive to other aspects of the

[[Page 30586]]

investigation. Because none of the shipment data has been verified, 
petitioners contend that the Department should use facts available when 
determining critical circumstances.
    In its rebuttal, NSC argues that the Department should use non-
adverse facts available in its critical circumstance determination and 
should instead use the submitted data in conjunction with the U.S. 
Customs data. Further, NSC contends that the record does not show that 
it ``failed to cooperate by not acting to the best of its ability,'' 
because it submitted the shipment data in a timely manner and requested 
that the Department verify the information. Furthermore, NSC argues 
that the shipment data it submitted clearly demonstrates that its 
shipments to the United States have not been massive during the 
relevant period. NSC contends that the Department has used Customs 
import data where the respondent's data was not verified. See Sodium 
Thiosulfate from the Federal Republic of Germany and the United 
Kingdom, (``Sodium Thiosulfate'') 55 FR 51749 (Dec. 17, 1990). In 
another case, where the exporters were non-responsive, the Department 
used import statistics for its critical circumstances determination and 
the petition rates for their margins. See Sodium Thiosulfate from the 
PRC, 56 FR 2904 (Jan. 25, 1991). In sum, NSC states that the 
Department, in some cases, has used Customs import statistics as facts 
available for determining critical circumstances.
    Department's Position: We agree with petitioners. With respect to 
critical circumstances, it would not be possible to conduct a critical 
circumstances analysis without relying on adverse facts available. In 
accordance with section 735(a)(3) of the Act for the final 
determination, we determine critical circumstances to exist if: (1) 
There is a history of dumping and material injury by reason of dumped 
imports in the United States or elsewhere of the subject merchandise; 
or (2) the importer knew or should have known (imputed knowledge) that 
the exporter was selling the subject merchandise at less than fair 
value and that there would be material injury by reason of such sales; 
and (3) there have been massive imports of the subject merchandise over 
a relatively short time.
    In order to determine whether or not the importer of a product 
under investigation knew or should have known that the exporter was 
selling the product at less than fair value, we use the estimated 
margins in our determination as a guide to ``impute knowledge.'' See 
Final Determination of Sales at Less Than Fair Value: Manganese Sulfate 
from the People's Republic of China, 60 FR 52155 (Oct. 5, 1995); Final 
Determination of Sales at Less Than Fair Value: Disposable Pocket 
Lighters from the People's Republic of China, 60 FR 22359 (May 5, 
1995); Final Determination of Sales at Less Than Fair Value: 
Ferrosilicon from Brazil, 59 FR 22359 (Jan. 6, 1994). If a particular 
exporter's sales to an unaffiliated U.S. company (EP transactions) 
yields a margin of 25 percent or greater, we determine that margin 
sufficient to impute knowledge to the importer. Similarly, if a 
particular exporter's sales to an unaffiliated U.S. company through an 
affiliated company (CEP transactions) yields a margin of 15 percent or 
greater, we determine that margin sufficient to impute knowledge to the 
importer.
    In this investigation, as discussed above in the Facts Available 
section, we have determined pursuant to an application of adverse facts 
available that the petition margin of 57.87 percent is probative of the 
selling practices of mandatory respondents Nisshin Steel Corporation, 
Nippon Yakin Kogyo, Nippon Metal Industries, and NSC. This margin 
indicates dumping over the 15 and 25 percent thresholds for these 
respondents' sales. In addition, the Department normally considers a 
preliminary International Trade Commission (``ITC'') determination of 
material injury sufficient to impute knowledge of likelihood of 
resultant material injury. The ITC preliminarily found material injury 
to the domestic industry due to imports of stainless steel sheet and 
strip in coils from Japan and, on this basis, the Department may impute 
knowledge of likelihood of injury to these respondents. See Preliminary 
Determination of the ITC of Certain Stainless Steel Sheet and Strip 
from France, Germany, Italy, Japan, the Republic of Korea, Mexico, 
Taiwan, and the United Kingdom, 63 FR 33092, (June 17, 1998). Thus, we 
determine that the knowledge criterion for ascertaining whether 
critical circumstances exist has been satisfied.
    Moreover, because we are applying adverse facts available to these 
four companies with respect to our final critical circumstances 
determination, we also find that imports for each of the companies have 
been massive. Consequently, both prongs of our critical circumstances 
analyses have been met. See Critical Circumstances section above for 
full discussion.
    We disagree with NSC's arguments for the following reasons. First, 
NSC argues that the Department should use the shipment data it 
submitted. Although, NSC submitted its shipment data in a timely manner 
and offered to have this information verified by the Department, the 
Department decided not to verify any of the information submitted by 
NSC due to substantial missing information since NSC did not respond to 
the Department's supplemental cost questionnaire. Thus, because the 
Department could not rely on NSC's sales and cost information as a 
whole we must apply total adverse facts available and it is not the 
Department's practice to verify partial information by a respondent who 
has not fully cooperated. Second, NSC argues that the Department can 
rely on Customs data in this case as was done previously in Sodium 
Thiosulfate. The Department is unable to do such an analysis in this 
case since the HTS numbers in the scope of the investigation are basket 
categories that include non-subject merchandise, and thus do not permit 
the Department to make an accurate analysis as discussed above. 
Further, the Department again has determined that, in this case, such 
an analysis is not warranted for NSC due to NSC's lack of cooperation 
in this investigation. Therefore, we have found affirmative critical 
circumstances for NSC.

Comment 16: Date of Sale

    KSC asserts that the Department should use invoice date as the date 
of sale. KSC contends that the Department proved through numerous tests 
during the course of verification that the material terms of sales 
change after the order confirmation date and up until the invoice date. 
For this reason, KSC believes that the Department's should consider the 
date of invoice as the date of sale. KSC cites the Department's 
regulations which state that the Secretary normally will use the date 
of invoice but, in some cases, will use a date that better reflects the 
date on which the exporter or producer establishes the material terms 
of sale. KSC asserts that in this case the invoice date is the only 
date that reflects the intention of the Department's regulations for 
date of sale. Furthermore, KSC cites the Department's decision in 
Notice of Final Results of Review: Certain Welded Carbon Steel Pipes 
and Tubes from Thailand, 63 FR 55578, 55587-88 (October 16, 1998) 
(``Pipes and Tubes from Thailand''), where the Department found the 
date on which the essential terms of the sale were established as the 
proper date of sale.
    Petitioners did not comment on this issue.
    Department's Position: We agree with KSC that invoice/shipment date 
is the correct date of sale for its home market

[[Page 30587]]

and U.S. sales of subject merchandise. Under our current practice, as 
codified in the Department's regulations at section 351.401(i), in 
identifying the date of sale of the subject merchandise, the Department 
will normally use the date of invoice, as recorded in the producer's 
records kept in the ordinary course of business. See Pipes and Tubes 
from Thailand, 63 FR at 55578-55587. However, in some instances, it may 
not be appropriate to rely on the date of invoice as the date of sale, 
because the evidence may indicate that the material terms of sale were 
established on some date other than invoice date. See Preamble to the 
Department's Final Regulations, 62 FR 27296 (May 19, 1997) 
(``Preamble''). Thus, despite the general presumption that the invoice 
date is the appropriate the date of sale, the Department may determine 
that this is not an appropriate date of sale where the evidence of the 
respondent's selling practice points to a different date on which the 
material terms of sale were set.
    In this investigation, KSC, in its response to the original 
questionnaire reported invoice/shipment date as the date of sale in 
both the U.S. and home markets. However, when requested by the 
Department, KSC also reported order confirmation date, but maintained 
that the invoice date would be a more appropriate date of sale. For 
purposes of our Preliminary Determination, we accepted the date of 
invoice as the date of sale subject to verification. See Preliminary 
Determination, 64 FR at 112.
    At verification, we carefully examined KSC's selling practices. We 
found that it records sales in its sales and financial records by date 
of invoice/shipment. For the home market, we reviewed several sales 
observations for which the price and quantity changed subsequent to the 
original order (see KSC Sales Verification Report, dated March 24, 
1999). For the U.S. market, we reviewed several instances in which 
material terms of sale changed subsequent to the original order. In 
addition, the Department has examined the time lags between order date 
and invoice date to determine whether it was appropriate to use order 
date as the date of sale. See Circular Welded Non-Alloy Steel Pipe from 
the Republic of Korea; Final Results of Antidumping Duty Administrative 
Review, 63 FR 32833, 32835 (June 16, 1998) (``Steel Pipe from Korea''). 
However, it is important to note that, in Steel Pipe from Korea, the 
Department found that ``[t]he material terms of sale in the United 
States are set on the contract date and any subsequent changes are 
usually immaterial in nature or, if material, rarely occur.'' Id., 63 
FR at 32836. In contrast, KSC reported that there were numerous 
instances of changes in terms of sale between the initial order date 
and the shipment/invoice date. Therefore, invoice date is the most 
appropriate date of sale, notwithstanding some time lag between order 
confirmation and invoice. As noted above, we observed a significant 
number of such instances at verification where changes did occur 
between order confirmation and invoice. Based on KSC's representations, 
and as a result of our examination of its selling records kept in the 
ordinary course of business, we are satisfied that the date of invoice/
shipment should be used as the date of sale because it best reflects 
the date on which material terms of sale were established for KSC's 
U.S. and home market sales.

Comment 17: Scope Exclusion Requests

    Since the Preliminary Determination we received a number of scope 
exclusion requests. Printing Developments, Inc. (``PDI'') requests that 
the necessary stainless steel supplies used for the production of 
printing plates using a stainless steel substrate be excluded from the 
scope of the investigation. PDI has found only one Japanese 
manufacturer who produces materials to meet PDI's rigorous 
specifications. To date, PDI has found no U.S. producer able to produce 
this specialized product. PDI is presently discussing the requested 
exclusion with one petitioner who has demonstrated some interest in 
supplying stainless steel sheet for the production of the printing 
plates.
    SMI argues that the Department should exclude a certain form of 
ASTM specification 403. SMI contends that it is the only producer in 
the world of this grade of stainless steel sheet and strip used for 
production of certain applications. Furthermore, a partner of SMI in 
developing this material solicited three U.S. steel producers but none 
were willing or able to produce the material in question.
    Watanabe argues that welding strip should be excluded from the 
scope of the investigation. Watanabe cites the Preamble in stating that 
the Department ``intend(s) to avoid * * * situations where products in 
which the domestic industry has no interest are included in the scope 
of an order'' 62 FR at 27323. Further, Watanabe claims that it 
solicited quotes from all petitioners but received no response. 
Therefore, Watanabe urges the Department to exclude welding strip from 
the scope of the investigation. Because there is no evidence on the 
record of this investigation that U.S. producers have sold the 
aforementioned product during the POI and because no U.S. manufacturer 
was willing to produce the said merchandise, Watanabe argues that 
welding strip should be excluded from the scope. In addition, Watanabe 
claims that there are no ASTM and AISI standards for this product.
    Petitioners have commented that they are unwilling to consider any 
further exclusions from the scope of investigation.
    Department's Position: Since petitioners have not indicated a lack 
of interest in these particular products, the Department has not 
excluded any of these products from the final scope of investigation.

Comment 18: GIN4 and GIN5 Scope Correction

    Hitachi Metals America, Ltd. (``HMA'') requests that the Department 
make two corrections to the definition for GIN4 and one correction to 
the definition of GIN5. First, HMA asserts that the proprietary name 
``GIN4 HI-C'' should be included in the definition of GIN4, because the 
excluded product is sold under that name as well as GIN4 Mo. Second, 
HMA contends that the product GIN4 should be compared to AISI 420 as it 
is ``more similar'' to that product than ASTM 440F. Finally, HMA argues 
that the Department should revise the units for carbide density for the 
product GIN5. HMA asserts that the correct units for carbide density 
should read ``one hundred square microns'' as opposed to ``square 
micron.''
    The petitioners have not commented on these requests.
    Department's Position: We agree in part. The Department disagrees 
with the suggestion that we include an explicit reference to GIN4 HI-C 
in the scope language. The Department's scope has provided illustrative 
examples but not an exhaustive list of proprietary names. It is 
unreasonable to expect the Department to do such for each particular 
product variety and it is unnecessary for the scope language to include 
each and every proprietary product meeting the noted exclusion. The 
Department agrees that the product GIN4 should be compared to AISI 420 
and has made the necessary change. Finally, in regard to the GIN5 
correction, the Department agrees with the noted correction and has 
made the necessary change.

[[Page 30588]]

Interested Party Comments Regarding Cost

Comment 1: Cost of Second Quality Merchandise

    Petitioners argue that the Department should reject KSC's reported 
costs for non-prime merchandise (``seconds'') and the related offset 
adjustment to prime merchandise costs. Petitioners assert that in its 
November 18, 1998 Section D response, KSC did not report costs for 
seconds because it claimed it could not identify the physical 
characteristics for sales of such products. Petitioners argue that 
KSC's home market sales database provides information allowing it to 
identify at least three of the product characteristics for seconds. 
Petitioners note that KSC offered a proposal in its Section D response 
that the Department should use the weighted-average cost of all prime 
merchandise as a proxy for the cost of seconds. Petitioners state that 
this proposal was rejected by the Department and KSC then submitted 
costs for seconds in a supplemental response dated January 11, 1999. 
Petitioners claim that, instead of reporting its actual costs for 
seconds, KSC provided the average cost of products based on the known 
physical characteristics. Petitioners argue that KSC should have 
calculated the actual costs of production for seconds based on its 
costs for prime merchandise with the same identifiable characteristics. 
Petitioners assert that the methodology used by KSC to report the costs 
of seconds in its supplemental response resulted in unreasonable cost 
allocations. As an example, petitioners claim that nine products with 
different grades were assigned the same variable cost of manufacturing. 
Petitioners also argue that KSC assigned unreasonable costs that do not 
reflect the reported costs of prime merchandise with similar 
specifications, as demonstrated by four submitted comparisons of nearly 
identical prime and secondary products with significantly different 
assigned costs. In addition, petitioners argue that KSC improperly 
reduced its costs of prime merchandise with an offset adjustment 
related to the assigned costs of seconds. Petitioners note that KSC 
claimed this offset was necessary to avoid overstating total costs 
because it calculated costs for seconds in the same manner as prime 
merchandise. Petitioners assert, however, that KSC did not assign the 
same costs for prime merchandise and seconds of the same product 
specifications. Petitioners also claim that it is unclear from the 
record what methodology was used by KSC to derive its offset adjustment 
and that there is no indication that the Department traced this 
adjustment to KSC's normal books and records. Therefore, petitioners 
argue that the Department should disallow this reduction to the costs 
of KSC's prime merchandise.
    KSC argues that the Department should use its reported costs for 
seconds, which were based on data maintained in the ordinary course of 
business. KSC notes that it has repeatedly explained, and the 
Department has confirmed, that it does not maintain actual production 
costs for seconds and therefore it cannot report actual costs for 
seconds. KSC states that, as confirmed by the Department in its sales 
verification report, it does not maintain the same product details for 
seconds as it maintains for prime merchandise. KSC asserts that the 
extent to which its sales records provide reliable evidence as to the 
precise characteristics of a secondary product depends on the 
information needed by sales personnel in order to make the sale. KSC 
claims that some of the reported physical characteristics in its sales 
database may be pure estimates and that the only thing known for 
certain is that the sales of seconds are, in fact, seconds. With regard 
to the different products that were assigned the same variable cost of 
manufacturing, KSC asserts that each of those products either had an 
unknown grade, finish, or metallic coating, and thus these physical 
characteristics could not be reliably identified. KSC states that 
seconds are recorded in inventory as a by-product, at their net 
realizable value, but that it reported costs for seconds as if they 
were co-products of the prime merchandise, in accordance with IPSCO, 
Inc. v. United States, 965 F.2d 1056, 1061 (Fed. Cir. 1992) (``IPSCO'') 
and Notice of Final Determination of Sales at Less than Fair Value of 
Stainless Steel Plate in Coils from the Republic of Korea, 64 FR 15444, 
15455 (March 31, 1999) (``SSPC from Korea''). KSC asserts that by using 
this reporting methodology, which adjusts the costs of seconds, it is 
necessary to reduce the costs of prime merchandise to avoid overstating 
its total costs of production.
    Department's Position: We agree with KSC and have not adjusted its 
reported costs. As petitioners note, we did object to the proposal set 
forth by KSC in its Section D response for reporting the costs of 
seconds. Our supplemental questionnaire dated December 22, 1998 stated, 
``the COP for second-quality products should not be calculated using 
the methodology suggested at page D-29. The use of a single weighted-
average cost of all prime products is not an acceptable method of 
calculating costs for second-quality merchandise. Evidence presented in 
the home market sales database indicates that KSC is able to identify 
sales of second-quality products to a high level of specificity. To the 
extent possible, KSC should use its production system to calculate the 
actual production quantities and costs for second-quality products 
during the POI. If such detailed production information is not 
available, KSC should derive such production quantities and costs based 
on its sales records.'' KSC followed these specific directions in 
reporting costs for seconds in its supplemental responses, dated 
January 11, 1999 and January 25, 1999. The only instances in which KSC 
based its reported costs for seconds on the overall weighted-average of 
prime merchandise were those in which it was unable to identify the 
grade, finish, and non-metallic coating of the secondary product. The 
nine secondary products that petitioners submitted as an example of 
different products with the same reported costs clearly fall into this 
category. While petitioners claim that the grades of these products are 
different, the grade, finish and non-metallic coating characteristics 
were all coded as unknown. As KSC notes, in no case did the Department 
identify a second that was miscoded as a prime, or a prime that was 
miscoded as a second. Thus, it is reasonable to expect that the costs 
of these seconds would be calculated based on the weighted-average of 
all prime products.
    In other instances where only one or two of these three 
characteristics were unknown, KSC calculated the reported costs of 
seconds based on the weighted-average costs of prime merchandise with 
the identical characteristics, aside from the unknown 
characteristic(s). The four comparisons presented by petitioners 
clearly reflect this approach, as we recalculated the cost of these 
secondary products without exception. See, Memo to The File from 
William Jones, dated May 19, 1999. As a result of our analysis, it 
appears that KSC properly reported its cost of seconds, to the extent 
it was able, in accordance with the IPSCO rule that prime and secondary 
merchandise be treated as co-products and be assigned equivalent costs.
    With regard to the offset adjustment that KSC applied to its prime 
merchandise, we agree with KSC that this offset was necessary to avoid 
overstating its total costs. Since KSC does not track the cost of its 
secondary merchandise in its normal books and records, it was necessary 
for the company to recalculate costs in the

[[Page 30589]]

manner described above. We reviewed a reconciliation of KSC's total 
reported costs to its audited financial statements, noting an 
insignificant difference. If the offset adjustment applied to the prime 
merchandise had been overstated, then the reported costs of prime 
merchandise and seconds would have been understated, and the 
reconciliation would have revealed the understatement. Since the offset 
adjustment appears to have been properly calculated, we will not make 
any additional adjustments to the reported costs of KSC's prime 
merchandise.

Comment 2: Application of Cost Variances

    KSC allocated its variable cost variances between subject and non-
subject merchandise on the basis of total standard costs incurred for 
subject and non-subject production. In the KSC Cost Verification Report 
at 2, we stated that it may be appropriate to allocate variable cost 
variances at the packing and transportation cost centers on the basis 
of production quantities, rather than standard costs, since the costs 
in these cost centers are more likely to vary in relation to the 
production quantities. KSC allocated its fixed cost variances between 
subject and non-subject merchandise on the basis of the total finished 
production quantities of subject and non-subject merchandise. We also 
stated in our cost verification report that it may be appropriate to 
allocate fixed cost variances at KSC's No. 4 refining and No. 4 
continuous caster cost centers on the basis of tons processed.
    KSC claims that standard cost is the most appropriate basis for 
allocating packing and internal transportation costs, as these costs 
vary by value, and therefore no adjustment is necessary. KSC argues 
that its packing costs vary based on the type of packing rather than 
the quantity of production. KSC asserts that the subject merchandise 
requires more costly packing to protect the thinner gauge models and to 
protect the finish of models with special surfaces. KSC argues that its 
internal transportation costs are also more likely to vary with value 
because higher-cost products require extensive downstream processing 
and are transferred more extensively throughout the mill. KSC claims 
that if the Department reallocates the variances incurred at the 
refining and continuous caster cost centers, it should do so in a 
consistent manner for both variable and fixed variances, based on data 
from the entire POI. KSC states that it has no objection to such a 
reallocation, though it would result in a de minimis adjustment which 
indicates the reasonableness of its submitted methodology.
    Petitioners claim that KSC improperly allocated certain variable 
and fixed overhead variances, as identified in the cost verification 
report, which understated KSC's reported costs. Petitioners argue that 
information on the record does not support KSC's assertion that its 
packing costs tend to be associated more closely with the value of the 
product than with production quantity. Petitioners argue that there is 
no consistent correlation between the reported per-unit packing cost 
and either sales value or the cost of manufacturing. Petitioners 
provide examples to support its claim that there is no information on 
the record to affirm KSC's assertion that its internal transportation 
costs vary by value rather than quantity. Petitioners note that the 
Department's verifiers focused on the common cost centers that 
generated the largest variances and that, if the Department had the 
resources to examine all of KSC's allocations, other errors requiring 
revisions may have surfaced.
    Department's Position: We agree with KSC that any reallocation of 
variances incurred at the No. 4 refining and No. 4 continuous caster 
cost centers should be applied to both variable and fixed cost 
variances, and should be calculated based on the entire POI. The result 
of such an adjustment would have a de minimis impact and therefore we 
have not revised the variance allocations.
    We have adjusted the reported costs, however, to remove the packing 
and transportation variances. KSC derived its reported costs by first 
calculating variable and fixed cost variances, then applying these 
variances to the standard cost of each product. Since the resulting 
actual cost includes packing and loading costs, it was necessary for 
KSC to remove packing and loading which are not part of the cost of 
manufacturing. KSC only deducted the standard packing and loading 
costs, however, while retaining the variances associated with packing 
and transportation cost centers in the reported costs. Since packing 
costs are classified as an adjustment to the gross selling price, and 
since the packing costs reported in the sales databases are actual 
costs (see KSC Sales Verification Report at 17), the variances 
associated with packing and transportation should be removed from the 
reported cost of manufacturing. We have adjusted the reported costs to 
remove these variances, rendering the allocation basis (i.e., quantity 
or standard cost) a moot point. It is irrelevant whether production 
quantities or standard costs are used to allocate packing and 
transportation cost variances between subject and non-subject 
merchandise, as long as the allocated variances for these costs are 
completely removed in deriving the cost of manufacturing.

Comment 3: G&A Expenses--Losses on Disposal of Fixed Assets

    Petitioners argue that KSC erroneously excluded certain losses on 
the disposal of fixed assets from the calculation of its general and 
administrative (``G&A'') expense rate. Petitioners argue that, although 
these fixed assets may be unrelated to production of subject 
merchandise, the Department's normal practice is to calculate G&A 
expenses based on the producing company as a whole, and not on a 
divisional or product-specific basis. See, e.g. Notice of Final 
Determination of Sales at Less Than Fair Value: Stainless Steel Round 
Wire from Canada, 64 FR 17324, 17333 (April 9, 1999); and Notice of 
Final Determination of Sales at Less Than Fair Value: Fresh Atlantic 
Salmon from Chile, 63 FR 31412, 31433 (June 9, 1998) (``Fresh Atlantic 
Salmon from Chile''). Petitioners claim that it is reasonable to 
include all cost of sales as well as all G&A expenses incurred by KSC 
during the POI for the calculation of its G&A expense rate.
    KSC argues that the Department should not include its losses on the 
disposal of fixed assets used for production of non-subject merchandise 
in calculating the G&A expense rate. KSC claims that the Department has 
recognized that expenses relating exclusively to the production of non-
subject merchandise do not belong in G&A expenses. KSC maintains that 
the facts in the instant case are similar to the facts in Fresh 
Atlantic Salmon from Chile, in which the Department noted that it would 
not include the disposal of fixed assets in G&A if the assets in 
questions were tied to the production of non-subject merchandise. KSC 
also cites to the following cases as examples of Department practice on 
this issue: Brass Sheet and Strip from Canada; Final Results of 
Antidumping Duty Administrative Review, 61 FR 46618, 46619-20 
(September 4, 1996) (``Brass Sheet and Strip from Canada''); Certain 
Hot-Rolled Lead and Bismuth Carbon Steel Flat Products From the United 
Kingdom; Final Results of Antidumping Duty Administrative Review, 60 FR 
44009, 44012 (August 24, 1995) (``Lead and Bismuth from the U.K.''); 
Final Determination of Sales at Less Than Fair Value: Furfuryl Alcohol 
From South Africa, 60 FR 22550, 22556 (May 8, 1995) (``Furfuryl Alcohol 
from South

[[Page 30590]]

Africa''); and Final Determination of Sales at Less Than Fair Value: 
Certain Carbon and Alloy Steel Wire Rod from Canada, 59 FR 18791, 
197895 (April 10, 1994) (``Steel Wire Rod from Canada''). KSC claims 
that because the assets in question relate to the production of non-
subject merchandise, the Department should exclude such expenses from 
the calculation of KSC's G&A expense rate.
    Department's Position: We agree with petitioners and, as in the 
Preliminary Determination, we have included the losses on the disposal 
of fixed assets in our calculation of KSC's G&A expense rate. We 
verified that the assets in question relate to the production of non-
subject merchandise. However, it is our practice to calculate G&A 
expenses using the operations of the company as a whole. See, e.g., 
Brass Sheet and Strip from Canada, 61 FR at 46619; and Circular Welded 
Non-Alloy Steel Pipe and Tube From Mexico: Final Results of Antidumping 
Duty Administrative Review, 63 FR 33041, 33050 (June 17, 1998). As we 
stated in the original questionnaire issued to KSC, ``G&A expenses are 
those period expenses which relate indirectly to the general production 
operations of the company rather than directly to the production 
process for the subject merchandise * * *''. Therefore, any income or 
expense incurred through KSC's disposition of fixed assets should be 
included in the G&A expense rate, regardless of whether they are used 
purely for the production of subject merchandise or non-subject 
merchandise. This policy was established in Final Determination of 
Sales at Less Than Fair Value: New Minivans from Japan, 57 FR 21937, 
21943 (May 26, 1992) (``Minivans from Japan''). In that case, the 
Department stated, ``we generally consider disposal of fixed assets to 
be a normal part of a company's operations and have included, 
therefore, any gains or losses generated by these transactions in the 
cost of production calculation.'' (emphasis added). This is consistent 
with our treatment of miscellaneous income expenses in U.S. Steel Group 
et al v. United States, 998 F. Supp 1151 (CIT 1998). We note also that 
KSC incurred losses on sale of fixed assets related to the production 
of subject merchandise and these losses were included in G&A expenses 
and allocated over the cost of all products that KSC produced.
    In Fresh Atlantic Salmon from Chile, cited by KSC, the issue was 
whether to treat temporary shutdown costs as period costs or G&A 
expenses, that would normally be allocated over the cost of all 
products. The Department determined that the facilities in question 
were only idle for a brief period of time and therefore the costs 
associated with the temporary shutdown should not be treated as G&A 
expenses. Rather, the costs of operating the facility were charged 
directly to the cost of manufacturing for the non-subject products 
produced in the facility. The Department did not, as KSC implies, 
specifically exclude the shutdown costs from the G&A expense 
calculation because the facility did not produce subject merchandise. 
KSC's reliance on Brass Sheet and Strip from Canada and Steel Wire Rod 
from Canada is similarly misplaced. The issue in these cases was 
whether to include in a respondent's G&A expenses certain costs that 
were incurred by a parent company or a subsidiary. The citations are 
not on point since the instant case involves equipment that was owned 
by KSC itself and, as noted above, the Department calculates G&A 
expenses based on the operations of the respondent as a whole. Expenses 
incurred by a parent company, or any other affiliated company, are only 
included in the G&A expense calculation where the affiliated company 
provides services to the respondent company. KSC's citation to Lead and 
Bismuth from the U.K. is also misplaced, since the respondent in that 
case closed an entire facility that only produced non-subject 
merchandise and then excluded these closure costs from the G&A expense 
rate calculation. In the instant case, KSC simply disposed of assets 
and, as noted above in Minivans from Japan, the Department's policy is 
to include all gains or losses generated by such disposals. The 
respondent in Furfuryl Alcohol from South Africa calculated separate 
G&A expense rates by division and a company-wide G&A expense rate for 
G&A expenses that related to the operations of the company as a whole. 
60 FR at 22556. Here, KSC submitted a single G&A expense rate for the 
entire company and only included the losses on the sale of fixed assets 
related to subject merchandise. It would not be appropriate nor 
reasonable to allocate these losses over the cost of producing all 
products, while specifically excluding losses on the sale of fixed 
assets used for non-subject production. Since the sale of fixed assets 
is a general activity of the company, and not specifically related to 
production, we have allocated all losses on the sale of fixed assets 
over the cost of producing all products.

Comment 4: General Administrative Expenses--Severance Expenses

    KSC states that its expenses on special retirement are one-time 
severance payments to employees who are transferred from the company 
and are considered an extraordinary expense under Japanese generally 
accepted accounting principles (``GAAP''). Therefore, KSC claims that 
the Department should not include these expenses in the G&A expense 
rate calculation. KSC asserts that the special retirement payments are 
not normal, as petitioners claim, because these expenses would normally 
be accrued as pension liability over an employee's career. KSC also 
claims that these amounts are not related to KSC's current operations 
since the workers are no longer employed by the company and KSC has no 
obligation to make continuing payments to these former employees. KSC 
states that it can incur such expenses in more than one year, to the 
extent that the downsizing of operations may not be completed in a 
single year and additional layoffs or transfers may occur in other 
years.
    Petitioners argue that KSC erroneously excluded expenses on special 
retirement from the calculation of its G&A expense rate. Petitioners 
claim that these expenses were incurred during the POI and constitute 
normal costs associated with the operation of KSC's business. 
Petitioners state that to qualify as ``extraordinary'' in nature, an 
expense must be highly unusual and should not reasonably be expected to 
recur in the foreseeable future. Petitioners assert that it is not 
unusual for a company to layoff employees when downsizing and it is not 
unusual for a company to offer severance payments to affected 
employees. Petitioners also argue that such expenses cannot be 
considered infrequent because KSC recorded the same expenses during the 
two prior fiscal years. Petitioners state that it is irrelevant whether 
the expenses on special retirement may be classified as extraordinary 
under Japanese GAAP, because the Department's practice is to rely upon 
a respondent's books and records prepared in accordance with home 
country GAAP on the condition that those accounting principles 
reasonably reflect the costs associated with the production of subject 
merchandise and have been historically used. See, e.g., Notice of Court 
Decision: Certain Corrosion-Resistant Carbon Steel Flat Products From 
Canada, 63 FR 49078, 49079 (September 14, 1998). Petitioners claim that 
since the expenses were incurred both prior to and during the

[[Page 30591]]

POI, and the expenses were associated with KSC's business operations, 
the Department should include these expenses in the G&A expense 
calculation, regardless of whether Japanese GAAP allows KSC to present 
these amounts as ``extraordinary'' items on the financial statements.
    Department's Position: We agree with petitioners and, as in the 
Preliminary Determination, we have included the expenses on special 
retirement in our calculation of KSC's G&A expense rate. The expenses 
for special retirement are severance costs that are recorded as part of 
KSC's ongoing downsizing operations. The Department's normal practice 
is to include severance costs in a company's G&A expenses. See, e.g., 
Notice of Preliminary Determination of Sales at Less Than Fair Value: 
Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil, 64 FR 
8299, 8305-8306 (February 19, 1999), and Notice of Final Results and 
Partial Rescission of Antidumping Duty Administrative Review: Certain 
Pasta From Turkey, 63 FR 68429, 68434 (December 11, 1998). We noted at 
verification that these downsizing activities have resulted in 
recurring expenses for KSC. The fact that the process may extend over 
multiple years does not preclude the use of current period expenses. 
KSC has recognized in its audited financial statements the expense 
related to the current fiscal year, and it is this period cost which we 
have included in KSC's G&A expenses. Also, the classification of these 
amounts as extraordinary expenses under Japanese GAAP is irrelevant. 
The Department in some instances will exclude costs considered 
extraordinary, provided that they are both unusual in nature and 
infrequent in occurrence. These expenses for special retirement cannot 
be considered infrequent in occurrence since they have been a recurring 
cost for KSC and, therefore, are properly included in G&A expenses 
along with other period costs. See Silicomanganese From Brazil: 
Preliminary Results of Antidumping Administrative Review, 62 FR 1320, 
1322 (January 9, 1997).

Comment 5: G&A Expenses--Bonuses

    Petitioners claim that KSC should include bonuses paid to the 
company's directors and statutory auditors in the calculation of its 
G&A expense rate. Petitioners refer to a schedule in KSC's consolidated 
financial statements, which indicates that such bonuses totaled 10,773 
million yen during the POI.
    KSC points out that the petitioners' claim is based on a misreading 
of its financial statements and that the bonuses paid to the directors 
and statutory auditors were actually 42 million yen. In addition, KSC 
claims that its G&A expense rate calculation includes all relevant 
bonus expenses.
    Department's Position: We agree with KSC and therefore have not 
adjusted the G&A expense rate calculation for bonuses. As shown in 
KSC's financial statements in its ``Statement of Other Surplus,'' the 
total bonuses to directors and statutory auditors during the POI were 
only 42 million yen, and we verified that the amount of bonuses 
reported in KSC's G&A expenses were reasonable.

Comment 6: G&A and Financial Expense Rate Application

    Petitioners argue that the Department should account for packing 
costs and loading charges in calculating and applying KSC's G&A and 
financial expense rates. Petitioners note that packing costs and 
loading charges are included in the cost of sales denominators used to 
calculate these rates, but the per-unit cost of manufacturing figures, 
to which the rates are applied, do not account for these costs. 
Petitioners argue that the Department should correct this situation by 
increasing the cost of manufacturing of each product for packing costs 
and loading charges.
    KSC asserts that the Department could address this problem by 
removing packing costs and loading charges from the cost of sales 
denominators, as it has in previous cases. See Notice of Final Results 
and Partial Rescission of Antidumping Duty Administrative Review: 
Certain Pasta From Turkey, 63 FR 68429, 68434 (December 11, 1998). 
However, KSC argues that it is impossible for large companies (such as 
KSC) to determine the precise amount of packing costs incurred for all 
products, in all plants and by all divisions. As an alternative, KSC 
suggests that the Department reduce the company-wide cost of sales 
figures using the ratio of packing and loading costs to total costs of 
manufacturing for the subject merchandise.
    Department's Position: We agree with petitioners that an adjustment 
is necessary in order to apply the G&A and financial expense rates to 
the per-unit cost of manufacturing on the same basis on which it is 
calculated. We also agree with KSC that our preferred method of making 
this adjustment is to remove packing and loading costs from the cost of 
sales denominator. However, as KSC acknowledges, the company-wide 
packing and loading costs are not available in the instant case. We 
have chosen not to use KSC's proposed alternative, which requires the 
assumption that packing costs for all company products are incurred in 
the same ratios as the subject merchandise. Instead, we have applied 
the G&A and financial expense rates to the per-unit cost of 
manufacturing inclusive of packing and loading costs.

Comment 7: Financial Expenses--Foreign Exchange Losses

    Petitioners argue that KSC incorrectly excluded a subsidiary's 
foreign exchange losses when calculating its reported financial expense 
rate. Petitioners note that the Department's practice is to use the 
highest level of consolidation to calculate financial expenses due to 
the fungibility of financial resources and to include foreign exchange 
losses on debt in the same calculation. Petitioners claim that the 
excluded foreign exchange losses were related to debt and thus should 
be included in the financial expense rate calculation.
    KSC acknowledges that an insignificant amount of foreign exchange 
losses were inadvertently omitted from the calculation of its financial 
expense rate.
    Department's Position: We agree with petitioners and have adjusted 
KSC's financial expense rate calculation to include the foreign 
exchange losses related to debt that were incurred by a KSC subsidiary.

Comment 8: Financial Expenses--Affiliated Party

    Petitioners argue that the Department should adjust KSC's reported 
costs to include financing costs associated with the purchase of 
equipment. Petitioners note that an affiliated company, KSC 
Enterprises, purchased equipment from unaffiliated companies and then 
sold the equipment to KSC under an installment contract. Petitioners 
assert that the cost of financing was not included in the purchase 
price and therefore was not included in KSC's depreciation basis for 
the purchased assets. Petitioners further note that the financing cost 
was not captured since it was eliminated in the preparation of KSC's 
consolidated financial statements.
    KSC contends that the interest expenses captured on its 
consolidated income statement reflect all of the financing expenses 
actually incurred by the consolidated entity and that petitioners' 
claim seeks to supplement these amounts with financing incurred on 
specific assets. KSC argues that petitioners' claim violates the 
Department's practice of allocating finance expenses based on the 
consolidated corporate entity. See

[[Page 30592]]

Aramid Fiber Formed of Poly Para-Phenylene Terephthalamide From the 
Netherlands; Final Results of Antidumping Administrative Review, 63 FR 
37516, 37517 (July 13, 1998); E.I. DuPont De Nemours & Co. v. The 
United States, 98-7 (CIT Jan. 29, 1998) (``DuPont'').
    Department's Position: We agree with KSC. As noted, our long-
standing practice is to derive the financial expense rate using the 
respondent's audited consolidated financial statements. See, e.g., 
Silicon Metal From Brazil: Preliminary Results of Antidumping Duty 
Administrative Review, 63 FR 42001, 42005 (August 6, 1998). This 
practice has been upheld by the CIT as reasonable. See DuPont. 
Petitioners are correct in noting that the depreciable basis of the 
asset does not include financing costs, and the financing costs 
associated with this specific transaction between the two affiliated 
entities are eliminated in the preparation of consolidated financial 
statements. However, petitioners are incorrect in their assertion that 
these financing expenses should be included in the depreciable basis of 
the asset as this would result in the double-counting of costs. Since 
KSC's reported financial expense rate was properly based on its audited 
consolidated financial statements, which reflect all borrowing incurred 
by the consolidated entity, we have not made any adjustments to this 
rate.

Comment 9: Calculation Error

    Petitioners claim that there is an error in KSC's reported cost for 
one control number, because the reported cost does not agree to 
supporting documents presented at the cost verification. Petitioners 
claim that the supporting documents indicate that the reported costs 
were understated and the Department should adjust the reported cost 
accordingly.
    KSC asserts that the reported cost for the control number is 
correct. KSC states that the supporting worksheet contains a clerical 
error and that, after correcting for this error, the weighted-average 
cost calculation on the worksheet agrees to the reported cost.
    Department's Position: We agree with KSC. We reviewed the worksheet 
that demonstrates the weighted-average cost calculation for this 
control number, noting that the unit costs of two products comprising 
the control number were switched in error. When the error is corrected, 
the resulting weighted-average cost is consistent with the figure 
reported by KSC. Therefore no adjustment is warranted.

Continuation of Suspension of Liquidation

    In accordance with section 735(c)(1)(B) of the Act, we are 
directing the Customs Service to continue to suspend liquidation of all 
entries of subject merchandise from Japan that are entered, or 
withdrawn from warehouse, for consumption on or after January 4, 1999 
(the date of publication of the Preliminary Determination in the 
Federal Register) for KSC and companies falling under the All Others 
category. We are directing the Customs Service to continue to suspend 
liquidation of all entries of subject merchandise from Japan that are 
entered, or withdrawn from warehouse, for consumption on or after 
October 12, 1998, for NSC, Nippon Metal Industries, Nisshin Steel Co., 
Ltd., and Nippon Yakin Kogyo. The Customs Service shall continue to 
require a cash deposit or posting of a bond equal to the estimated 
amount by which the normal value exceeds the U.S. price as shown below. 
These suspension of liquidation instructions will remain in effect 
until further notice. The weighted-average dumping margins are as 
follows:

------------------------------------------------------------------------
                                                              Weighted-
                                                               average
                   Exporter/manufacturer                        margin
                                                              percentage
------------------------------------------------------------------------
KSC Steel Corporation......................................        37.13
Nippon Steel Corporation...................................        57.87
Nisshin Steel Co., Ltd.....................................        57.87
Nippon Yakin Kogyo.........................................        57.87
Nippon Metal Industries....................................        57.87
All Others.................................................        37.13
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    Pursuant to section 735(c)(5)(A) of the Act, the Department has 
excluded any zero and de minimis margins and any margins determined 
entirely under section 776 of the Act, from the calculation of the 
``All Others'' rate.

ITC Notification

    In accordance with section 735(d) of the Act, we have notified the 
ITC of our determination. As our final determination is affirmative, 
the ITC will, within 45 days, determine whether these imports are 
materially injuring, or threaten material injury to, the U.S. industry. 
If the ITC determines that material injury, or threat of material 
injury does not exist, the proceeding will be terminated and all 
securities posted will be refunded or canceled. If the ITC determines 
that such injury does exist, the Department will issue an antidumping 
duty order and direct Customs Service officials to assess antidumping 
duties on all imports of the subject merchandise entered, or withdrawn 
from warehouse, for consumption on or after the effective dates of the 
suspension of liquidation.
    This determination is issued and published in accordance with 
sections 735(d) and 777(i)(1) of the Act.

    Dated: May 19, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-13680 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P